Tuesday, August 16, 2011
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.