Tuesday, August 16, 2011

Darkness! The Tables Have Turned!

Well that didn't last long - one rumored China rate hike, a messy German GDP print and we are back to full panic stations. TMM are tempted to hold on but, frankly, with data deteriorating this fast we are tempted to book it and run. Long term value? Maybe, but a few things have caught our notice recently:

1. The dreaded OIS in EUR is moving fast. Its retraced a bit since the ECB peripheral liftathon but not by much. Which brings us to....
2. 22bn EUR in the securities market purchase program? Damn. That is an awful lot - enough to likely cause a revolt amongst the German public and more than a few of their marionettes known as politicians.
3. Short sale bans? That's desperate and incidentally never really works. Apparently instructions going around the IBs are quite specific about how one is not meant to facilitate banks shorting Socgen but so long as Eurostoxx Banks futures are trading it seems a bit daft. TMM recently read a rather good paper at Voxeu.org here which argues that while European banks seem to be able to deal with some pretty adverse haircuts the more pernicious problem is that so long as those economies cannot plausibly stick with austerity programs / misaligned FX then their banks won't fund cheaply and can't make money. This is a lot more depressing than saying "you have a hole in your Tier 1".

TMM are booking gains and staying on the sidelines in many things though US earnings from the likes of Home Depot are heartening - who would have thought home improvements were coming back from the dead? Maybe if blue collar jobs are too we should take another look at Cabelas. While it is hard to fight weaker US data and the prospect of a bona fide Euro blowup sooner rather than later there are reasons to be bullish longer term. Sadly, TMM don't get paid on rolling 2 year performance and are finding a rock to hide under until Labor Day.

17 comments:

Anonymous said...

So their big idea is... the Tobin Tax?! Looks like it's all up to J.C. "We Do Not Do QE" Trichet to keep duct-taping things together until the changing of the guard in November.

Leftback said...

Not only do They Not Do QE, they hike at the most stupid moments imaginable... yes, duct tape, please, nurse, stat... no rate cuts from Tricky unless someone implodes in a huge way, but some jawboning about the possibility of one... now how about a global CB action (perhaps a weekend commando raid) to sell the yen and restore the Carry Monkey to his place in the Banana tree?

Anonymous said...

FWIW Mr. Yen seemed to be saying no action until they see a six handle on dollar yen.

Anonymous said...

'C from C'
Look you can have all the dreams you like,but if it leads you to committing to a counter trend rally as though it is some intermediate low then you'll get turned around more often than you like.
I have no doubt a bid cam in looking for yield because it thinks P/E's are wonderful...they always are if you think about it because they are usually looking abck at an historic high point for yield and then looking at how a sell off as made that ratio even more attractive.
All of this is very usual behaviour.
The macro looks beyond all that nonsense.It's says' what kind of economic enviroment have we got here..is it expanding naturally ,is it refplating because the central banks have played shuffle with asset relationships to encourage a response from investors etc,or is it slowing and perhaps even contracting because the underlying issues of debta nd levearge have not yet been dealt with.
If you think the latter then you won't be dreaming about price based sustainable growth going up much anytime soon.Indeed policy responses in play at the moment seem poised to to make growth seem like a very rare beast.
As far as bounces go I think the targets have been met.

Anonymous said...

'C from C'adds
Actually, I thought price would swan around around at these levels long enough to get longs in and then push them back down to the recent markets lows and establish this as anew lower range going through the second half.More in line with the growth data we are seeing.

Anonymous said...

Short of time and making mistakes..

"are if you think about it because they are usually looking abck at an historic high point for yield and then looking at how a sell off as made that ratio even more attractive"
For clarity I onbviously refer to very high earnings which when followed by falling price makes investors go ..yummy yummy yield

However, if the price is adjusting to a detriorating business enviroment then one should not get too focussed on the earnings made in the past. One should be looking more at what are those earnings going to be in the future and if they disappoint what is Mr Investor likely to do.

Leftback said...

C from C, the yield differential (DVY/10yr) here is wide on an historical basis. The P/E contraction junkies seem to be everywhere in the media but might end up getting this 2H 2011 market massively wrong, if:

a) TEOTWAWKI doesn't arrive (US flat, no recession).
b) Rates stay locked into these 1950s levels.
c) Earnings don't deteriorate as much as expected.
d) Lower fuel costs act as a tax cut for J. Sixpack.
e) Europe sloppy but not totally pear-shaped.
f) Obama gets a decent fiscal/jobs package together.

This is not to deny the macro arguments assembled by C from C, but the trajectory may prove a little different against the ZIRP/QE background. We have said it before, but the 1970s analogies are flawed and inapplicable, in almost every way imaginable. The key is this: inflation will be sporadic and transient, b/c there is ZERO wage inflation due to union busting, and housing has nowhere to go except lower....

Leftback said...

Much ado about nothing today, in the US at least.

XLU almost green, XLE and XLF dead red. Days like today are a part of the sausage machine that occurs during sector rotations, and not very indicative of overall sentiment.

Polemic said...

I'm on holiday, so don't know if it's holiday highs over rationale, but not that worried and not that bothered. Today's price action shows disparity between news worry and price action. Grind up.
But then what am I to know .. No wonder Greek banks did so well last week. Judging by the incomes Greece is taking from us tourists Greek CDs should be half of France's...

Yours
Mr Holiday Pol.

Anonymous said...

"No wonder Greek banks did so well last week. Judging by the incomes Greece is taking from us tourists Greek CDs should be half of France's..."

Another hint at the level of rationality on this site: pol got reaped off by a greek restaurant or more likely hooker, and he thinks business must be real good; that way you should just go visit the various red light districts in Germany and you would be in orgasmic buy everyday. Maybe that's why you folks are always following the squids' salesmen around the streets of patpong. Its opex week, I stay long till Friday, after that its bonjour les degats :)

Leftback said...

Yellow card shown to Anon.

"Gratuitously showing the studs and sliding in on Mr Polemic from behind with both feet, there, son. No need for that, eh? Now, keep your nose clean for the rest of the game, lad, or it's an early trip to the showers for you.... right, let's get on with the game, shall we?" (whistle)

Leftback said...

Here's a snap of those bankers caught in the act during the financial "riots" of 2008...

Amateurs

(from Barry Ritholtz's blog)

hjortsbergster said...

(Dolly Parton - Here you come again)

here we go again... just as I begun to get my book together... you bid up the bund.. and smash those euribors.. and pretty soon I'm wondering where is my PnL?

Anonymous said...

Chiming in on the particular controversy du jour, a retired Colonel from military intelligence pointed out that Governor Perry now finds his campaign permeated by agents of the Neoconservative political movement, of whom the Colonel and his coorespondents are highly suspicious.

For their part, Neocon activists delivered a mild rebuke whilst simultaneously drawing attention to their own recent Damascene conversion to Fed criticism. It was not readily apparent that Perry's threat to the Fed had caused him to be seen as a persona non grata for the Neocons.

The Perry Incident sets a new high water mark for the larger "Fed bashing" trend in the GOP, anti-Fed candidate Paul recently placed second in a closely watched poll, and candidate Bachmann stated "I've been fighting on that issue since I came into Congress."

The clear aim of Perry's attack was to intimidate the Fed into refraining from an open round of QE3 before the election. Were the Fed to be seen as bowing to pressure from political actors, some credibility of Fed independence could perhaps be lost.

Anonymous said...

Ben B he don't bow to bullying..he's toughhhhh ...I mean hardddd as nails...

Tradebot said...

Tobin tax...yeah, right. The entire Merkozy package was a pie in the sky, it is going to get shot into pieces by national governments. They don't get it - you can't save the periphery by trashing the core, you got to choose which one you want to keep.

Regardless, as long as the ECB keeps buying the next leg of crisis is averted...once the money stops the music stops and we are back to ITL/SPA/FRA widening.

All this is just posturing and trying to buy time... if by some miracles sudden spurt of economic growth will materialise and bail the periphery out.

Anonymous said...

Big B, do with them whatever you like...