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...

Posted by cpmppi at 12:34 PM  


That's the sound of a confident man, TMM!

FX said...
1:48 PM  

So, you don't think that PIMCO is the first rumble before the earthquake?

Owe said...
2:08 PM  

Nice ,but overcomplicated.
Too much profit built up in commodities ,pried to perfection for growth all at a time when same prices are in danger of creating global unrest. Appears simply time to back off the extreme event that big countries might take away from you if you persist.
Marginally lower growth,who knows ,but for sure the moneys got to go some where so it backs off to cash and yield in safer havens whilst the overplayed themes get cleaned out again. Seasonally this was overdue ,but the Middle East delayed it.

Anonymous said...
2:15 PM  

DGDF crowd must be BRICing it this morning, TMM. When China blows later in the year they will be FUCT*.

* Forced Unwind of Carry Trades

Owe, PIMCO just wants cheaper prices and higher yields before they jump back into USTs. Don't we all?

Leftback said...
2:24 PM  

as an investment manager rather broker dealer pimco can say whatever it wants and that includes ways of moving market to wherever it wants.

bye bye betty and aud/usd btw. shatze looking good too, but dollar up, better for your ED greens.

love the analysis btw. simples but no mention of downside risks.

Anonymous said...
2:40 PM  

Pimco expects cheaper prices & higher yields at the same time the Bucky turns (this) corner?

Anonymous said...
3:01 PM  

As i said the other day looking across various asset classes it was setting up for the US$ to clean out them trades.

Anonymous said...
3:09 PM  

In the case of PIMCO, the lower prices might be 5-10 minutes after the Gross man goes on TV and makes his silly Death of Treasuries comments.

It's amazing how quickly the Death of Treasuries can morph into a Dearth of Treasuries. Watch what they do, not what they say.

Leftback said...
3:27 PM  

Plenty of carcasses of the QE2 followers today, but remember the SP500 is ONLY now sitting on the 50dma and it could all be an interim shakeout if the dip is bought ... if it is not.

Elsewhere I note;

- Copper is indeed suffering lately and I agree that it heralds a general slowdown in the reflation trade. Given the general supply trend I will be a greedy buyer of the ETF if the shakeout becomes severe (beta in Chile is getting a crapping too, so it might also be a good one to watch). Chinese consumers will pounce strongly on any sustained price weakness to ramp up stockpiles I think.

- ECB is hawkish which usually means that we are about to go south.

- Gold cannot hold 1422ish and this is bad since it is now the fourth attempt. Some techies I know are talking about "evening stars" ... is it Christmas yet :)? Silver is breaking down nicely too although, a silver short is probably still the widow maker par excellence out there. Remember, we ARE running out and all ...

- IF it really is the deflation trade coming back on line, we can expect US curve to steepen as short term yields lose air. And of course, the buckie should get a good pad on the shoulders due to the risk off sentiment. Finally, if we don't hold the 50dma on the SP500, there will be plenty of air underneath for a move to the 1100 marker before the Beard slaps on QE3.

CV said...
4:58 PM  

Of course, reading through the recent reports of stockpiles in Shanghai being used as collateral for loans suggests something quite different is in play here on Copper ...

Plus ca change :)

CV said...
5:16 PM  

Great Post.
The copper chart is probably more reflective of Chinese growth these days though. If you average the Chinese and US PMI's the correlation would be a bit better.
PIMCO just sold Treasuries to buy MBS. They still have US credit risk, just selling optionality now too. Media is mis-interpreting, as usual.

5:19 PM  

If commodities go down like this, I am not sure about the story of "China blows later in the year ". Growth will be slow, but blow up? Buy on dip.

Anonymous said...
6:46 PM  

We had a feeling that a local maximum in bond yields might be close at hand as the LBVI (Leftback Vilification Index) has recently spiked to new heights here at the blog, in response to a few less than apocalyptic views on bonds.

Unlike Mr Gross we have about a 10% position in the long bond, and about 30% US fixed income total. Our views are more or less in line with those of Mr Gundlach. High yield and munis are overvalued and the end of QE2 is already priced into Treasuries.

We also missed loading up on Treasuries earlier this week but the PPI number next week plus the usual media frenzy over oil will probably scare a few punters out of the long bond again.

Apart from the EM to DM rotation, we have also been proposing a growth stock to dividend rotation, so we were buying in a few selected names today.

Crude was bound to reverse downwards after Krugman left his reputation (!) in tatters by commenting that there was no speculation, simply "inelastic supply and demand".

Leftback said...
6:52 PM  

If China blows it will be for a very familiar reason, because of a housing bubble clearly visible in the ratio between housing prices and per capita income, and a resulting banking crisis. The timing is anyone's guess, but based on US experience, incremental policy tightening measures can easily burst these overheated and fragile bubbles.

Leftback said...
6:56 PM  

@LB, what is wrong with NZT? I thought the RBNZ news would be good for it.

Anonymous said...
8:50 PM  

Most of those forecasting the end of the world as we know it re treasuries don't appear to understand the loop.
The Fed abckstops treasuries,in exchange it gives free money to risk takers who go and buy tangibles.Some of the tangibles are inflationary which is good because that's what the Fed wants.
Whatthe Fed doesn't want are tangibles that are so out of control that they force up treasury yields increasing the cost of goverment debt beyond the growth it is committed to getting.
When that happens and a sign of that are gold bugs ,food bugs etc etc then the Fed can unwind it more or less whewn ever it chooses to. The giver of liquidity is quite capable of removing as much as necessary to retain control. The only thing it can't control is how much of each others blood will be spilled by the risk taking gold bugs and food bugs trying to get out.However, who cares aboutnthem anyway,if they have driven t6hem to record multi year record prices and are stupid enough to still be sat on them then one can choose to watch Monty python reruns ,or their modern day equivalent .

Anonymous said...
9:35 PM  

I do find it a bit strange how the buy side always look down their noses at the sell side.

The inescapable fact is that 99.9% of the buy side are merely looking after other people's money.

If they really are so superior, they would be one of the UNHW who comprise a portion of their clients. Rather, they are the ones who have come into work every day working for the people who actually have the assets they are entrusted to look after.

Anonymous said...
5:08 PM  

I'm not sure about the first paragraph. I've had plenty of equally satisfying "MINE", mostly followed by "BID ON". :)

Anonymous said...
12:13 AM  

If the AUD carry is unwinding, it sure is taking its time. Looks like its going to end in a wimper rather than a Bam. AUDJPY on other hand....

Carry Trader said...
3:05 AM  

Saudi army in Bahrain

Anonymous said...
12:05 PM  

The Saudis also went into Bahrain in 1994.

Uranium mining companies are down big today, along with Japanese ADRs, obviously. The nuclear power plant problems are extremely serious but may be overstated by the media. Our hopes and prayers are with those involved in handling the situation.

Apocalypse trades might be profitable to fade today, as is often the case.

Anonymous said...
12:57 PM  

Anon 5.08 pm

I agree, good point. We are all equal in this game. Everyone has a boss , everyone has a client and everyone has to realise that civility and humility are precious. Apologies if we gave the impression otherwise.

Polemic said...
9:56 PM  

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