Friday, June 03, 2011

Himalayan Pink Salt

But first the NFPs - If we say that growth stocks are going to get hit on slowdown concerns and that feeds on as a theme into global commodities and assume that the USD will get hit vs neutral bases on a "USA is Toast" theory, then surely the neutrals will end up doing best against the commodity currencies (EUR/AUD GBP/NZD, CAD/JPY for example). Stocks should also get carbonised and if they don't, we know that the QE3ers are running the show. If THAT is the case then we should sell anyway because, as we said yesterday, we aren't playing the 2010 QE end game. Phew .. And on to lesser things.

TMM have just had an email from their very nice fitness trainer suggesting that they add a pinch of Himalayan Pink Salt to their water bottle for best rehydration results. Himalayan Pink Salt? What the heck is that? Having checked it out and found that it is just 96% normal NaCl, the rest being gypsum and homeopathic quantities of other pollutants, we really wonder why people peddle this stuff as a cure-all. Whilst we understand the benefits of electrolyte balance to rehydration, TMM will just be adding a pinch of cheap supermarket table salt.

TMM are sure they are not alone in noticing a huge assumed correlation in the health benefits of foodstuffs to the remoteness of their source. The efficacy of such remedies is also assumed to dramatically increase if it can be shown to have been consumed by a small poverty-stricken population of organic tribesfolk. It obviously works in reverse too, as when you actually get to some of these places you find said tribe wearing jeans and smoking Marlboros probably having been sold them by some enterprising villager pushing the unique health benefits. The novelty of such strange products also implies superiority in ownership in belonging to a small club of cognoscenti (which of course is how handbags can fetch $3000+).

So Himalayan Pink Salt ticks the boxes on all levels. The Himalayas are obviously a long way away, both horizontally and vertically, the population roughly fits the profile needed and the bonus is that it's pink, which carries caring references. But most importantly it has a HUGE profit margin for the supplier.

TMM wondered further if this marketing trait occurs in the world of finance. Well yes, of course it does, the financial industry's profits have had their versions of Himalayan Pink Salt at their core throughout history. Successfully finding the next exotic, new and uncommoditised product allows financiers to reap huge profits before the world works out that the product has no benefit or that its active ingredient is available in a much cheaper generic form. We have all seen these things in the past, be they leveraged products that are a sum of vanilla options, or tax structures that use your counterpart's balance sheet or of course all the toxic waste that brought the house down 2 years ago.

What is noticable to TMM is the struggle banks are having to go through to invent and sell its next new version of the Himalayan Pink Salt. The number of term sheets hitting TMM's desk over the past year having all but gone down to zero. Now we know that reams have been written about banks having to scale back risk and we know how the regulator is trying to regulate taking risk out of sight, but without the structured high margin business we wonder how the investmment bankers are going to make their livings as more of them are turning back to selling high volume vanilla products. Basically turning back into brokers from being "investment banks". In a way this lack of the "next big thing" is pretty synonymous with the West's problem vs the developing world. What is the West going to invent next to regain its wealth gradient against the rest of the world which is winning the competition for jobs and income (hello there today's NFPs). In particular the US fast needs its own new Himalayan Pink Salt to peddle to the world. The Apple version, though a damn good effort, just isn't enough.

We dont know what the answer is but we have just worked out that Himalayan Pink Salt is pretty important in making our society tick. We better crampon up and head east.


Leftback said...

IPOs of social media companies seem to be the nearest thing the banks can find to Himalayan Pink Salt recently. The continued buying by apparently not quite certifiable New Yorkers (!) of bottles of $5 Fiji water of identical chemical composition as the stuff in the tap suggests to LB that the new Age of Austerity is not yet with us.

Leftback said...

Doesn't sound like you're buying the f***ing dip, TMM? Is that b/c you think commodities need to correct further or b/c the market can't rally without the banks arresting their headlong plunge?

We are a little more optimistic and are playing for a Summer Soft Patch recovery rally, even though it's not really Silly Season yet. Yields on SPY are now higher than the 5y, and yields on DVY are higher than the 10y.

So I am going to call for a bounce, b/c:

1) I think enough punters will buy the idea that this is a one-off slowdown set of data (whatever we might think is the case),
2) yields on Ts are seriously unattractive here. That can get you a three week rally until the next lot of data rolls around.
3) In addition, QE2 is still in progress.
4) Perhaps b/c of 3) there is little to no indication of credit stress in the US.
5) I also believe that USDJPY has hit bottom and that JPY can take over carry trades for a while.

The big unknown is of course Eurobolleaux™ (hope that catches on).

Polemic said...

basically LB because the only thing keeping them up is history or soon to become history. Credit, earnings, growth and hope. All due a kicking.

As for your reasons..
1) Thats why we haven't fallen yet
2) Yields AND stocks can move in line as was seen through the first wave crisis and later, the recovery.
3) But not for long
4) No credit stress now doesn't mean even less credit stress tomorrow. (Yazoo song in reverse?)
5) But doesn't that only happen when folks fancy the US again and yields start to rise for noncredit reasons?

Oh and finally for the techs .. I think 1090/95 support will break . Dow looks like it has broken its up-channel from last august.

As for "Eurobolleaux".
I gather that Chateau Eurobolleaux Premier Cru 2011 is particularly unpalatable drinking, having been blended with German sour grapes from Greek vines.

Leftback said...

Good points, me old China, which can be summarized as "JSTFR". You talked me into a rather smaller punt than I had originally contemplated. Monday is often wiser than Friday, eh? Cheers, TMM.

Anonymous said...

Polemic, 1090 support? Thx

Polemic said...

Oops 1290 support. 0 key too close to the 2. Goodnight.

Nemo Incognito said...

Despite low vols the put flies on equities and commods seem a good way to even out ze delta of another likely range bound and dull summer. China worth watching but I'm more comfortable saying "won't go up much, if at all" than calling for a Chinese RTO deathspiral just yet. Way too early and once again, there's a bubble in bubble spotting.

Anonymous said...

If groupon ipo isn't pink salt what is... the incompetence of executives at all the dead man walking phone book companies / yellow pages should would wake up and use thier sales force in the same way...

As for calling the equity markets or a china crash why even bother... It's a rigged game both ways.. I'll take something easier and just say silver is still looking mighty weak.

Anonymous said...

Pink salt - being rock salt, has mythical properties in older Indian folks' mind. You can get it at your local Indian grocery store, very cheap. There are several types of rock salt. Believe me you donot want black salt - high sulphur content-suppose to cure cough.

Leftback said...

Here comes your test of 1290-1295, chaps. Let's see if the bull is dead or if he will frustrate the matador for a few more weeks/months.

LB has his eyes firmly on USDJPY 80, and cannot for the moment believe that the BoJ will let the yen strengthen a great deal beyond that level without considering intervention.

I wonder if DSK had a case of Eurobolleaux Premier Cru delivered to his "Perv's Palace" (ht: NY Post)?

Anonymous said...

and there goes that 1290

CV said...

Yep, it is not holding ... Not quite sure what the USD/JPY is doing though?!

But I am with LB here; Japan needs a positive RATE OF CHANGE in the JPY to get anywhere but the current slow grind into nothingness. The BOJ will need to throw caution to the wind, but it may take a gruelling move into the 78ish area before.


Polemic said...

1290 yes..

Now then usdjpy . I cant help but feel that a litttle excursion down to 78 area should be in order. On two fronts. Commodity currs to fall vs jpy dragging it down, and Us/jpy is a rates play isn't it? Plus where is the pain? 77.50 anyone?

As for the BoJ isnt this is a different game to post tsunami and hence harder to garner international support for an intervention program just on slowdown woes coming from the US? Without global support they might as well burn the dollars they buy .. didn't we write something last year on competitive devaluations?

CV said...

Right Polemic, but the Japan are up against the wall and if they don't want to peddle all those JGBs (cat bonds anyone ;)) to foreigners they need the BOJ to bid.

Basically, the flow of savings and deposits in Japan are close to a systemically shortfall vis a via the flow of JGBs as there simply isn't enough stock of wealth that can be shifted into JGBs. 75% of the big Japanese banks' securities portfolios are already parked in JGBs and although this leaves 25% there is a visible end of the line here.

But of course, we may see 78 before and indeed, that would be painful, very painful indeed ;).


Leftback said...


First blood to you, TMM, on 1290 support, doesn't look like that is going to hold and that should usher in more weakness. Good call, and retrospective thanks for saving me some Wonga. Will send you a magnum of Chateau Eurobolleaux™.

Note that credit isn't running for the hills, though, although the bank stocks look bloody awful, and the panic buying of Treasuries seems to have ended.

USDJPY, max pain? Hmm, 77.50 would certainly elicit some pain in LB's portfolio. That would get us to SPX 1250 (and associated post-tsunami Nikkei levels), one imagines.

Polemic said...

Damn forgot rule 1. - "usd/jpy will be difficult" And i have it tattooed on the back of my hand.

Its actually too early to get excited about anything. We need to get past a potential Bounce Tuesday. So far it does appear to be pretty much tied up in equity land. certainly no panic elsewhere - feels pretty calm in FX. Would like to see what Asia does overnight once they come back to play - that should set the tone,

Leftback said...

LB bows to TMM's superior understanding of JPYUSD and is off to enjoy some Himalayan Pink Salt in his Fiji water. Will be curious to see what Tokyo does. If the BoJ doesn't get busy soon, Claus, LB will be featuring less appendages at the end of his metatarsals.

CV said...

Well yes, perhaps I ought to try that salt as well.

You and me both LB, but as Polemic notes, there is little action in FX land at the moment and thus short JPY seems to be a good call option, if anything, on further intervention.

As for the BOJ, they kept up their balance sheet expansion in May (slightly up from April), but it is still down from March (which saw the big spike), so I concur that my theory remains just that, a theory.


Leftback said...

On a different note, anyone donning the Kevlar gloves for some EPU after a 14% one day decline?

Anonymous said...

Leftback, i guess that depends on what costume the new pres is going to wear, lula or chavez

FX said...

Is it just me in thinking that the ambulance chasers are about to be run over and given a consoling toweling by some very frustrated spectators. Yep, I could be wrong, it's a possibility.

Skippy said...

QE (methadone) withdrawal today?

Anonymous said...

Great post, throughoutly enjoyable.