Monday, July 18, 2011

It's a New Dawn

"It's a new dawn, it's a new day, it's a new life for me,
Yeah, it's a new dawn it's a new day it's a new life for me ooooooooh,
And I m feeling...errrrrrrr... a gut wrenching panic?"

Now as many commentators to this blog have been kind enough to point out, TMM have been Edward the seconded on their timing of a few pertinent trades recently but accept graciously their bowel toasting. What they do stand fast on though is their decoupling theory. Though the US markets and European markets are both getting toasted they are doing so for their own independent reasons but they do have one important thing in common - the current markets are not being driven by short term economic news, or central bank rate policy or by all the other things that economists are trained to watch and predict. Instead, it now all rests upon that most unpredictable of breeds - the politicians. In the US we have politicians in charge who appear to be happy to pull a nuke at a knife fight and in Europe the same breed are locked in, well , locked in denial.  So having learned from the financial crash and from our comments column that your losses are ALWAYS someone else's fault, TMM lay the blame for their losses at the doors of the politicians.

This dramatic swing to political issues is why TMM are so scared at the moment. What "should" have happened, applying common sense and logic, doesn't because some power hungry, seat protecting, blind stupid dum-ass politicians find the ball in THEIR court and rather than kick it in the right direction, squabble over it to the point that it bursts in a game ending BANG. Worryingly, the longer this takes the more national interests condense and scapegoats are looked for. Today TMM hear that Asian names are selling peripheral debt and, if that is the case,  it's game-over as the Asian Bid Life Boat turns out to be an Asian "save my own skin" Offer. It's one thing to rig your FX, it's another thing to not be a patient creditor. Last time around China and others got paid out at par despite selling GSEs, but TMM aren't so sure the Europeans are going to see it the same way this time and wish to send them on their way via the barber accompanied with the cry "should never have let them join the WTO" (as far as TMM were concerned open trade, and hence WTO membership, should be prerequisite upon open capital accounts).. But China isn't immune internally from any political fallout either.  If the EU does blow up, the politics in Asia is going to be very, very interesting: How smart does currency intervention look when the portfolio starts blowing up?

TMM are coming to cringe-worthy realization that Bill Gross may be right and we may be headed towards a world of yield caps - or wholesale default and disorder. In the case of the former it is abundantly clear that Mr T and the A Team are going to have to give up on inflation targeting in a big way if the Euro is to survive. TMM are with Roy Schneider on this one: "we need a bigger boat" line because that boat has got to fit Italy and frankly it is hard to see that happening while still having a credible inflation targeting policy. Meanwhile the Beard is not in a great position to do anything and can hardly step up until AFTER it all goes to hell.

And what of our old friends the ratings agencies? TMM think they have turned rabid. TMMS worst nightmare starts with them downgrading The London Clearing House or the Mercantile Exchange because that ends with the worst possible outcome -  Zerohedge is right about everything.



ntwsc said...

Oh blimey you did it again with the last comment. Keyboard's a bit blueberry juiced now.

Thanks especially for moving Uncle B out of sight though. Turned the milk this morning.

Leftback said...

Yes, yield caps indeed.

Reckon you can make a pretty good argument in favor of buying DVY and LQD and just forgetting about the whole bloody thing for 5-10 years. Tin foil hats would go out of style and ZH would shut down and most macro punters would go out of business...

But that wouldn't be any fun, would it, TMM?

Glad to see Big Darren closed the deal at Sandwich this weekend. Guinness drinking golfers everywhere salute you, Mr Clarke.

Nemo Incognito said...

LB maybe so, maybe so. What is going to be really interesting is that if this goes systemic (and it well might) there will be rich pickings once the unwinding / reduction of gross exposures is done. I'm thinking that holding less stuff in general of a non index / sellable nature makes sense here. The odd tilt at a relatively low vol high skew carry trade looks worth it too (short AUDSGD - boring as all hell if things are good, worth owning otherwise). It is one thing I've noted recently in that people are too beat up by equities but still hooked on EM yields / FX carry to fulfill their basic hierarchy of needs. I see the trade, but if the Euro hole isn't plugged by week's end this stuff ain't gonna hold.

Leftback said...

Nemo, I have been long selected US divys only and Japan since mid-March, apart from a few play-dates with SPY and QQQ when we reached the bottom of the range around 1260.

Have been taking a few punts from the short side here and there, when everyone got all happy-clappy. Not great today but having a lot in cash and hence exceptionally little risk on is definitely alleviating the pain.

LB's tea leaves suggest yet another can kicking in our immediate future. Let's hope they can keep the muzzle on Mangler this time. The problem for most punters isn't owning sovereign debt, or Euro banks, we don't. It's someone else owning a ton of them and having to liquidate a lot of other stuff that's the problem, 2008 and all that....

Agree there is going to be an awful lot of tasty yield out there for punters who can stomach some risk this summer. Carding a +10% this year is going to make you look like a genius in a low yield world.

Leftback said...

Here, this bloke seems to be able to perform miracles. He should be able to deal with Greece no problem.

Stupid Bicycle Tricks

Silly Season is officially here! Ink-stained wretches will be paying top totty to take their tops off in the fountains next....

Anonymous said...

Is there any talk anywhere about the possibility of breaking Eurozone in two, with South European countries forming their own monetary union?

Seems to me they need devaluation and higher inflation which Germany won't give them.

Now I'm a newbie in these matters, but I wonder why there's a lot of talk about individual Euro countries breaking from Euro and no talk about a coordinated split of Eurozone so everybody gets what they require.

Belektron said...

I agree. When political press releases and news conferences are driving the markets it is very tough for a fundamental trader to make profit.
But that's what it is at the moment. So lets try to adapt.

I am looking at gold and silver prices here and have been riding the recent spike with pleasure. Those two are the prime examples of political (stupidity) driven prices. And to forecast where glod&silver prices are going politics is the first place to look at and predict.
So what is in store in the next week? I think US "elite" will come to a "compromise" - basically kicking a can down the road, increasing debt ceiling with very limited improvement of catastrophic federal budget medium term outlook. Call it Plan B if you like.
My dilemma is how are gold &silver prices going to react to this. Will they go down as catastrophic scenario is averted or go up as it becomes more clear that debt pilling (and inevitable monetization from FED) is what future brings? Opinions welcome!

Leftback said...

Can kicking = safety trades get mauled.

Expect gold and silver, the yen, Swissy, Treasuries, bunds, and JGBs to be sold.

We've seen this movie a few times now.

Anonymous said...

Still decoupling ? Noted. O now the west coast beach crowd are correct after all? you are too modest now :)

Let us have a piece on "Brits/US can Fly" soon, along the lines of "Repelling Hannibal". Enjoying every piece, old men :o

Anonymous said...

So exactly what is getting "toasted" in the US. Bank stocks..who cares..that's due to the continued deleveraging cycle in the US. The S&P is 5% off its top.

Anonymous said...

Anyone up for some budget solving?

Budget Hero

Ambo said...

You've had be thinking this maybe the final tell in the intermediate timeframe,the last couple weeks I couldn't put my finger on it, but yeah its the Politicians.

I don't know what is ,its just like I've been rating and watching the same field go around and around the same distance from the same barrier now, bonds-spooz-finaz-oil.. when you know each runner well enough after watching them race against each other by the time they straighten up for the stretch home you know which one has had the run to suit...this time as we straighten up I don"t want to be on anything related to cash is king?= ust+ ref?

abee crombie said...

if we dont get an equity melt up at month end, then I'm with you TMM... otherwise i think can kicking is still in vogue

AUGSGD skew trade is interesting, espicially given all the warning signals...but not easy for retail.. I was short AUD/Dollar for a while, recently just gave up (AUD/NZD might be easier though)

CV said...

Even mainstream analysts are scared at the moment which seems to me to be an excellent time for a nice melt up in equities but unless the SPY breaches the 1370 barrier we are still range bound (playing the range of course can be lucrative for the adept speculator).

I am also long Japan (EWJ) and it is doing nice and technicals look good. My short JPY position through the ETF is getting hammered so it is all square for my long Nikkei/Short JPY punt for 2011. I am also long SPY from around 1275 (through the IVV). I am still in the 1400 camp since I think the debt ceiling will be breached and that this might push through a melt-up.

But I am also at the end of the day a macroeconomist and all leading indicators I am looking at point to a much broader and deeper global slowdown than what is currently priced in. It is not only about Europe but also ongoing EM tightening which is about to hit the real economy. The US economy is slowing visibly as well and lead indicators are close to recession territory.

In that sense, I would probably get trigger happy to take profit quickly on a meltup from here.

On a random note, Dr. Copper has strong fundamentals for H02 2011 and should be bought on "symphathy" weakness in the context of risk off.


mt99 said...

@LB 0936PM

Re: can-kicking => safety trade mauling

Will they really get mauled this time, especially as, as you say, this movie has been seen before?

The response delivered by (let's not forget) politicians has to be so unequivocally awesome (in its original definition) that I am finding it hard to believe that it will be either delivered or taken seriously.

Nobody seems to have any conviction at all about the next few months, and I doubt that the bad news fatigue will clear without at least a little bit of a panic.