Thursday, July 28, 2011

Catching Dutch Disease

All quiet on the Western Front where "No news is bad news" and hence, yesterdays drop. With Europe and US jostling for top dog status (dog as in "real dog") everywhere else is a safe haven. And on that basis the AUD is just going from strength to strength and its correlations to US equities is now completely reversed. CPI data yesterday has just added to the joy as it looks like the RBA will hike in August. Even through TMM's jaundiced eyes, any country that offers the chance to be paid more than an Investment Banker to blow things up really is God's country. We are ditching the suits and going "49er".

Full job description here... Yes, AUD1,250,000 salary plus bonus (if you blow even more things up). Join the queue.

Now TMM realise that calling blowups due to Dutch disease is generally a good way to end a career - the trend that causes the upswing in terms of trade can run an awfully long time before it all becomes painfully obvious that the rest of the economy has been hollowed out. But hollowed out it is getting- look at the retail component of the ASX. This is another thing that goes into TMM's "obscure trends that are working out" box, despite how miserable bigger picture index / FX stuff can be thanks to politicians.

This has all prompted TMM to rewrite the Vapours classic "Turning Japanese".


I'm catching dutch disease:

I've got your iron, and coal and AU,
And if your good I may sell them to you,
I sit here drinking, as there's nothing else to do.
You buy my FX as it never goes down,
And forget housing, thats just fine mate
'cos I'm Gods country with never a frown.

I've got your minerals, I've got your minerals,
I'll make a trillion if I dig more to sell,
I want more Asians, to take my minerals.
So I can sell to the West via them as well,
You've got me digging up and digging down,
And digging in and digging 'round.

I'm catching dutch disease,
I think I'm catching dutch disease,
I really think so,
Catching dutch disease,
I think I'm catching dutch disease,
I really think so,
Catching dutch disease,
I think I'm catching dutch disease,
I really think so,
Catching dutch disease,
I think I'm catching dutch disease,
I really think so.

I've got inflation, I've got inflation,
So I'll hike rates and you can go to hell.
I got Glenn Stephens, to cure inflation,
And McCrann to tell the "inside" as well.
I got rates raising up, not turning down,
I'll crank 'em up, won't pss around.

I'm catching dutch disease,
I think I'm catching dutch disease,
I really think so Catching dutch disease,
I think I'm catching dutch disease,
I really think so Catching dutch disease,
I think I'm catching dutch disease,
I really think so Catching dutch disease,
I think I'm catching dutch disease,
I really think so.

Got sun, and money and wine and women,
Its fun, some beer, stuff you, no worries, it's great!
Everyone around me is a total whinger,
Their Debt defaults, but I am in no danger.

I'm catching dutch disease,
I think I'm catching dutch disease,
I really think so,
Catching dutch disease,
I think I'm catching dutch disease,
I really think so,
Catching dutch disease,
I think I'm catching dutch disease,
I really think so Catching dutch disease,
I think I'm catching dutch disease,
I really think so.

[repeat]

18 comments:

mt99 said...

See you in Exeter.

Russia is a lot further up the Dutch Disease road and all is going swimmingly there! What are you worrying about?

Polemic said...

Mt99 What a great course that exeter link takes you too! Thanks. Sod corporate golf etc, lets go blasting for entertainment... I'm in..and it leads to a career.

Anonymous said...

I've sent that song to few Australians... received many insults, I guess it is the disease you are talking about

Tyler said...

Still risk on TMM?

Polemic said...

Tyler,

A lot of things we see minus politics says "yes", but those random statement generators in Washington are stuffing it for us...

What we really need is a good set of numbers next week to cement the view, but given the lack of positioning, we reckon a bit of good news could result in a big move.

Cheers,
TMM

Anonymous said...

I wonder if the US get's it's shit together whether we get a dollar rally and the strength of that in a low/slowing growth enviroment would be enough to unravel the recent safe haven tangible play? Crunch the Euro strength and unwind some of the asset propping the central banks have done continuing to lower govt debt costs along the way so they actually match up to low growth which most don't right now. Of course lower govt debt costs would not apply universally.The usual culprits would continue to suffer.

Tyler said...

From 'going over the top,' the long equity call was premised on: "a turn in the newsflow. Add to that a lack of positioning, burned P&Ls and a confluence of technical levels."

It is true that I am waffling on a directional view as much or more than anybody else. Clearly economic data can only surprise so long on the downside (CESIUSD) and perhaps that supports what you are saying about next week's data.

What are you looking at specifically that shows a lack of positioning? Agreed that europe periphery risk fades with expanded EFSF but the possible 'solutions' in the US are all half baked kick-the-can measure. When you wrote 'over the top' it looked like something close to the Gang of six proposal was the front runner. That would have been a meaningful step in the right direction. But hasn't that changed?

Polemic said...

Tyler... you are depressingly asking all the right questions.. but the honest honest truth is ...i feel that without the politics and sov debt blx the private sector can come back with a bang if public sector short term crap is shoved into long term crap. Actually thats not the complete truth.. the complete truth is that Im trying to type this on a phone in a bar with a fight between 2 french blokes about to break out beside me..a rare pleasure.. so can u do me the decency of granting me the right to not reply cogently right now.... oooooo that must of hurt.. i hope he s alright.. sort of.. heheee. Back tomorrow

CV said...

It is thursday mate ... off you go home to sleep ... Before one of the French blokes take an odd swing that is ...


As for the politics blx I am of the opinion that weakness should be bought since the path of least resistance remains more debt, not less. Am I being too naive?

Claus

realist said...

Yeah, I wish - any country that would bring banker's salaries down to comparably skilled workers in other industries would indeed be God's country. For that to happen, the govt would have to get out of money production first. The way things are, you can still get 10 shotfirers for 1.2 million (not 1, as you state) or 5 pretty good geologists... And that's in the middle of a mining boom.

Polemic said...

Had this horrible feeling it was a typo.. but please don t destroy a dream.. life is a balance between job satisfaction and income. Shotblasting for me must crank up the job satisfaction side of the equation... 120k to blow up things up still works..

CV said...

Uh oh, this is going to be another puke day I think.

Claus

Anonymous said...

"Uh oh, this is going to be another puke day I think. "

On the contrary.One man's gain is another man's loss so if you are puking I may be ordering another bottle of very nice wine.

Anonymous said...

It was a good day for sure, I love the buy the dip momo crowd, thamks for the money CV TMM etc. Brits are generous these days. J'aime beaucoup :) Pse decouple more :o

Leftback said...

We were playing golf, but Friday was a quite disgusting day in general, even though we weren't shocked by Q2 GDP, and a sizable hedge alleviated the worst of the pain. Even though LB remained in the tank (cash, REITs, big pharma, etc), some wide boys tossed a grenade down the hatch and there was a bit of carnage in the REITs. We weren't entirely pleased to see USDJPY down here, either.

We expect there will be a day or two more of Washington fomtoolery™ before normality resumes. It is, I am sure, by now obvious that the ensuing market response will be risk-on and a slaughter of some of the safe havens.

Hold your fire, platoon. Wait 'til you see the whites of their socks....

Leftback said...

I would like to add that the probability of S&P actually downgrading US from AAA is zero. Here's why:

POTUS: Sorry to bother you at home, but we appear to have a situation. I heard you were downgrading US from AAA?

Ratings Retard: That's correct Mr. President. The debt limit must be maintained to protect the integrity of our AAA rating.

POTUS: The same way you protected the integrity of your AAA rating on CDOs comprised of bundled securities that had a few AAA-rated securities in there to disguise the stench of subprime MBS?

RR: No.

POTUS: Do you like your job?

RR: No. Not really. But I have a huge ass mortgage and a metric ass-ton of credit card debt.

POTUS: That's a shame, then. Did you see the subcommittee hearings with Fabulous Fab? You know the French guy from Goldman?

RR: Yes, Mr President.

POTUS: I don't suppose you've ever sent emails to your wife/mistress/girlfriend bragging about how you just slapped a AAA on some steaming pile of turds. then?

RR: (...silence... crickets chirping....)

POTUS: So, we're good, then?

RR: AAA-rated. Mr President. Sir....

POTUS: Excellent. Now I have to get to the Tastee Freez before my daily game of hoops.... I invited Bob Reich this time, I like to play someone I can dunk on.
By the way, don't worry about the men in the bushes...

Anonymous said...

Greek Sovereign Debt Q&A (Update)

UPDATE JULY 25:
The determination of whether the Eurozone deal with regard to Greece is a credit event under CDS documentation will be made by ISDA’s EMEA Determinations Committee when the proposal is formally signed, and after a market participant requests a ruling from the DC. Based on what we know at this point, we can say the following. The package is in two parts:

First, the official sector part: more aid money; expansion of EFSF. All we have so far is the Statement of Heads of State and some general news reports. On the basis of these, there does not appear to be anything relevant to CDS.

Second, the private sector (IIF) part: a proposal for a voluntary exchange of debt, with four options. Since this is expressly voluntary, it should not trigger CDS. Also, since it is at this stage simply a proposal, there is nothing yet to raise to the determinations committee.

Leftback said...

This is a nice set-up for a YC steepener. Shorts at the long end have been thoroughly Edward the Seconded, and now even the Permabulls have signed on with the West Coast crowd and come over all New Normal.

You'd have to say that the BoJ aren't exactly high 5-ing each other to see USDJPY 76.xx this morning and so the chance of some concerted intervention is rising, now if the US can create even ONE job this week, we may see a sharp reversal in Treasuries, as a double dip is all but priced in here.

Maybe the best risk-on entry point for a while here? Continued US weakness means low rates, easy policy as far as the eye can see. Equity markets typically find intermediate lows on bad news, such that any more positive trend in ensuing data points trigger short covering rallies.