Judgement Day

Monday, August 08, 2011

Like the rest of you we are up to our eyeballs today in work stuff, so will be brief.

Well they DID do something (see our translation in last night's post). We would like to think that once the real money laggards have done whatever they have to re their mindless benchmarks the discretionary mob can start buying equities again, but the early confident JBTFD has evolved into a "whoops to soon". This is still a deleveraging game because we are more and more sure that if you don't delever yourself then the authorities are going to do it for you.

Periphery bond intervention runs to the same jousting rules we described last week for FX. They are in and we are guessing as to how much they have done and how much ammo they have. The frightening thing this morning is the complete lack of solidarity they are showing amongst themselves with the Germans already complaining. The US downgrade is a sideshow compared to this. The early kick off to the London Olympics brick chucking competition appears totally irrelevant, but we would like to point to it as the first signs of the unrest we alluded to on friday, though we doubt the mob involved could even spell university let alone get into one. Free shopping appears to have been the main draw.

Right, back to work. TMM leave you with a letter they have seen from the ECB.

Dear Mrs Merkel,

Thank you for your very generous bid at last night's charity auction in support of poor Italians. We realise that your exuberant generosity may have been the result of the copious supply of Spanish wine provided, but though you are now suffering a God-awful hangover and in the cold light of day are regretting your actions, we are going to hold you to your bid and can assure you that the pain you feel now will be nothing compared to that you will feel tomorrow.

Yours kindly
The ECB.

Posted by Polemic at 11:00 AM  


Mr Market isn't very impressed with the Eurofudge™ so far, but we are betting that fudge factories are going to be busy around the world this week.

Leftback said...
12:24 PM  

One more issue we will need to confront is a much-hyped muni market meltdown in the US, which is about to knock on the door with specific downgrades issued. Whither that money flees is an interesting question.

Leftback said...
12:35 PM  

So much venom against S&P. Amazing. Perhaps they didn't ride in like John Wayne, and they may look more like Jack Elam, but that is just the way it is. The emperor actually has no clothers. We may have seen Bush scantily dressed, but I am afraid we must put up with Obama naked...

12:45 PM  

"Time to go with plan B: Sterilize Berlusconi (and maybe that little Frenchie for good measure). We have to cut emissions to the bone."

-Frau M. in Baden-Baden

U really expect major dislocation in the muni market? Pre-refunded issues are a pretty small segment (as are defeased corporates). Can't believe SnP would go after indirectly linked munis as they already got some 'splainin to do.

Secret Sauce said...
12:56 PM  

If the Germans find the prospect of saving Italy on their account unpalatable, perhaps their assent might be induced by a promise to restore the Holy Roman Empire. Vienna has been rather quiet in all of this, and the Pope is, after all a German.

Anonymous said...
1:20 PM  

I'm sure they'd lift an offer for the Vienna Boys' Choir.

Secret Sauce said...
2:29 PM  

Germany will save Italy soon enough when the big industrial conglomerates see a worldwide slowdown ahead and get on the phone. Mangler will listen to BMW and BASF before she listens to France and Italy.

Ratings agencies may find they are called in for a visit to the proctologist. Tiny Tim is pissed. Munis will be a v-e-r-y slowly developing train wreck. It's hard to see much upside in that market.

Leftback said...
3:10 PM  

Definitely not enough from the politicians and down we go, but if we are now discounting a US recession I guess 1100-1200 is a fair range to be swimmming in.

I wonder where the pain REALLY is for the longs in this market. 1130?


CV said...
3:24 PM  

Claus, there is quite enough pain here, already, thanks. Fed ahead, it's going to be a wild week.

$80 crude and the resulting slide in gasoline prices is going to have a massively beneficial effect on the US economy, which will be felt within a month or two.

Assuming things don't go completely medieval...

Leftback said...
3:29 PM  

So the ECB folded like a cheap Chinese suit. Now that they're (temporarily) chasing shorts out of peripheral bond markets and bank shares, perhaps that pressure will be shifted to the exchange rate itself.

Those expecting that Germany is prepared to ride off into the sunset carrying a half dozen broken social welfare states on its back may be misguided.

Anonymous said...
3:34 PM  

Well obviously Lb, please dont think that I am not feeling the pain here too. I had a long position on an individual stock today getting blazed through the stop like a steamroller on nitro :)

CV said...
3:35 PM  

(BTW no offense to the Chinese. I'm totally addicted to cheap Chinese goods.)

Anonymous said...
3:40 PM  

Nothing like a good riot in Tottenham in August, eh? Does this count as blood in the streets, or is broken glass in the High Road and a few missing tellies good enough?

Compliments to the management, TMM, for both the humour and market forecasting, you have been spot on this month.

Leftback said...
6:19 PM  

Should we call this the "50 point chop shop" then?

CV said...
6:21 PM  

Yeah! Selling like it's 2008.

Anonymous said...
7:21 PM  

Looking at financials today is reminiscent of the darkest days of 2008/early 2009.

I haven't been doing this for as long as most others on this board, but I feel like we have are approaching capitulation levels here. A 50-75 point bounce (maybe even more?) seems likely to begin sometime this week... I will be buying (with tight stops) once the longs show a little backbone.

WellRed said...
7:31 PM  

Can't help but notice that FX and credit are weaker but in a much more orderly fashion tsearhan stocks.

Anonymous said...
7:36 PM  

yep, surprisingly little fx vol vs whats happening with equity ... correlations broken ... any insights or just folks frozen?

Anonymous said...
7:44 PM  

Leaving the markets aside for a moment. London riots escalating, safety concerns becoming paramount.

Watch yourselves, TMM. Make sure you get home in one piece, it's all going off out there.. I expected this to happen ages ago....

Leftback said...
7:50 PM  

The markets are bust. Very few discretionary players wanting to do anything they don't have to. Fx is obviously cleaned out hence no monster moves. Why play an fx correlation if your views are in a different asset class .. especially as correlations are breaking down.

Please stand away from the platform ....

Polemic said...
7:53 PM  

Agreed with LB above, the social part of this was all expected, especially when you look at previous debt busts in history. But it's one thing to theorise about it, and a whole another to see the events actually unfold.

Anonymous said...
8:03 PM  

LB .. thank me ol mucker , but to be honest they are occurring in not unpredictable places and you can always rely on the press to overhype a burning car.

New residents of Hackney and a few of the other newly gentrified parts of town must be a little surprised at this mean reversion to 1981. bang on schedule after the Tories regain power.

I am glad that the world is so so PC these days otherwise someone might suggest the London Met doing a job swap with the Syrian authorities.....

Polemic said...
8:05 PM  

Also Polemic, what do you mean fx is cleaned out? Because of SNB/BoJ? I would actually expect maybe not eurusd but at least the carry monkeys to be drowning with such a move in stocks (and banks behaving like we have a liquidity run of some sorts)

that being said, still way too many people talking 'bout donning the Kevlar for this to be over.

Anonymous said...
8:09 PM  

Mr. Fixie bike and the coldwave mullets, please meet the Sons of Captain Hook. Indeed.

Anonymous said...
8:14 PM  

The social unrest interacts with economic issues. After this lot has gone off in London, those booming areas of gentrification are not going to look quite so luvlee to Simon and Felicity who might decide to go back to a flat in Croydon or Watford to avoid the stench of burning tires.

You can imagine how many more punters are going to be underwater on their (recent) mortgages when property values fall 20% in some parts of town, which is now inevitable, as buyers reassess reality. The same dynamic could easily happen in NYC.

Leftback said...
8:32 PM  

re the fx , i was just getting the feeling that the FX markets have taken their cold steel of volatility over the past few weeks leaving very few intact positions. Eur/usd as you say is in a "two dogs fighting" pattern.. ( no its not a real one i made it up but does sound like a valid ) usd /jpy has amputated every appendage with its saw action and you end up with gbp as a bloody safe haven. I know few folks looking to play in FX even if it their specialist subject.

THink its time for a post tomorrow listing "you know the world has gone mad when" ..

Any suggestions to add to a growing list I'm compiling?

Polemic said...
8:46 PM  

Agreed. Credit curves steepening everywhere, including in real estate locations.

Thank goodness the Swerve is looking after them and their I/O BoE trackers

Anonymous said...
8:46 PM  

"you know the world has gone mad when" ..

GBP is a bloody safe haven.
Ratings agencies think they lead rather than follow.
Governments try to cut their way out of recessions.
Individuals pay more tax than multinationals.

Leftback said...
8:53 PM  

I forgot to add, when all of your favorite correlations break down at once....

What is different about this from 2008 is there is absolutely no evidence of a major dollar squeeze, and as Polemic points out, FX is completely frozen. That is normally thought to be inconsistent with a liquidity shortage or a run on the banks. So is this a pure panic, rotation out of riskier assets into Treasuries, bunds and JGBs?

What worries me now, is whether we might be about to see BAC go to zero, and then we are talking global counter-party risk all over again.

Son of TARP? Too Big to Fail?

Leftback said...
9:02 PM  



Anonymous said...
9:09 PM  

can the fed just start buying stocks or REITs like japan has been doing? what stopping them from that?

Anonymous said...
9:10 PM  

Scratch the idea of moving to Croydon. It's on fire....


Bloody Nora. I think a few Austerity Programs and Rate Hikes might be quietly taken off the table, eh?

Leftback said...
9:14 PM  

Farming looks better by the hour.

Not owning leveraged inner city property means LB sleeps soundly. Mean reversion to 1981 would make NYC quite a lot less hospitable than at present.

Be careful out there. Even anon, the one who is always baiting everyone.

Leftback said...
9:32 PM  

"you know the world has gone mad when" ..

* Merve is actually right about that interest rate thing
* the goldnuts are 56 points away from waving GOLD 1776 banners
* France has a higher rating than the US
* DM/EM decoupling is AGAIN fooling all of the people all the time

And also ...

"you know your PnL hurts when..."
* even a sterilising Berlusconi joke is not enough to alleviate the pain

Anonymous said...
9:35 PM  

....and now we hear that plucky UK PM David "Nero" Cameron has cut short his vacation in Rome to return to Londinium, which is burning and about to be sacked by Goths and Vandals. Hope he is playing his fiddle....

Barbarians at the gates. Watch out for roving bands of stockbrokers in Barnes, looking for mugging victims.

This is daft. Late summer is Silly Season, nothing ever happens in August. Absolutely mental, this is.

Leftback said...
9:40 PM  

Not to mess up with LB, I'll pick a name to differentiate myself from the baiting Anons.

"you know the world has gone mad when" ..

* the Facepalming Pit Trader Picture™ is back
* the "3 of 3 of 3 of 3" crowd is back
* you're no longer even sure that The Bear can work his magic

Dublin Dundee Humberside said...
10:02 PM  

When the bloody market sends your debt yields down this far why in heavens name would anyone think you need radical austerity based tightening?

The over riding problem here is lack of political confidence.
No one wants to commit to consumption ,or significant investement because they are frightened out of their life about what policy will be rolled out next by goverments and central banks.
Clueless twats.Bring back the guillotine.

Anonymous said...
10:07 PM  

I wonder to myself:

Anyone cares to handicap the FOMC?

* QE3?
* yield caps?
* explicit core PCE thresholds for "extended period"?
* strong vigilance?

Dublin Dundee Humberside said...
10:13 PM  

'you know the world has gone mad when....'

- "the site that must not be named" is inaccessible throughout the day due to heavy traffic

Anonymous said...
10:26 PM  

Dublin Dundee,
What are the odds on the yield caps? I wouldn't take even money, but I feel like the Bernankster may go with this route (a la his speech/paper on Japan's policy options). Also, because QE doesn't seem to be doing the trick.

Question is, where would he cap rates? With the movements we have been seeing, we could see the 10-year under 2% by mid-week. At some point, the complete disintegration in the rates markets has to be stimulative to both the housing market and the broader economy. Or have I buried my nose too deep in my econ textbooks?

WellRed said...
10:56 PM  

...when farming looked better to the turned Japanese LB by the hour.

Anonymous said...
10:59 PM  

Well, what a horror show ... I fully expect to see 1050 on my screen before the end of tomorrow's close. As long as people attemtp to catch the knife, it will fall hard!!! Also, some of this has to be forced selling by big names. I.e. someone somewhere is going to blow up here.

Well, I guess it is back to depression economics for now.

By the way, I just completed a compute from Old Street to my home without getting a bottle in my face. I hear the sirens in London but I don't see any of the riots but I live on the Isle of Dogs, nothing ever happens there anyway.


CV said...
11:13 PM  

I don't believe they would let a bank go suddenly .. slow tortuous "case of the incredible shrinking bank" much more likely. A perfect parasite doesn't kill it's host.

Anon re buying stocks.. QE. And even then, is bailing out specific shareholders that equitable?

LB .. actually it does look as though the Middle east and London are switching places.. Quieter in Cairo.

-6,.66 NIIICE

Anyone else think that someone is blackmailing Chambers of S+P, or have China hacked their systems? Prices on how long it is before he is banged up on some incredibly strange charge. Actually off that .. Its the republicans isn't it .. or is that just what the democrats are trying to have us believe,.,. F in politicians.

thanks for all the suggestions .. will pop them up tomorrow

Polemic said...
11:14 PM  

WellRed, housing is helped by lower rates through the refi channel. And without credit, this is simply not happening. Refi and MBS prepays these days are consistent with mortgages rates a good 100/150bp higher than they actually are.

Deleveraging is a bitch.

Dublin Dundee Humberside said...
11:27 PM  

ECB is accelerating the euro bond market collapse by pumping the liquidity into bad bonds, then sucking out liquidity from the remainder of the market with sterilization, forcing the next weakest bond to fall.
Is it correct?

Lemmiwinks said...
11:34 PM  

Methinks fxland has developed a path-dependent bias in relation to FED intervention relative to Euro/GBP.If the FED just settle for jawboning and hope and pray for the macro to improve globally, eventually it'll break but I've noticed in recent history when these two break the hardest theres always been a lopsided position in the smaller futures market, thats not the case at the moment so maybe thats reflective of Polemic saying FX is cleanout of, say, directional moves.

If we are in for what I think is a grinding 2H maybe selling rallies connected to China is the play, short but sweet.

My SP500 target \ 1000

Ambointhehouse said...
12:05 AM  

If markets are selling without any FX moves , USD squeeze or large carry trade unwind, it means only one thing: pure panic. Forced liquidations by large leveraged players (yes, Claus, some commodity HFs are going to blow up), margin calls for small speculators and panic selling by mutual fund investors with visions of 666. A toxic brew.

There has been an outbreak of general lawlessness in Liverpool this evening as the UK rioting spreads around London and across the country. No jokes about Liverpool please, LB happens to be Scouse.

Leftback said...
3:11 AM  

So if we accept that the last day or two of selling has not been in any way clearly and demonstrably macro-driven, then we must surmise that there is a big puke going on - some interesting speculation on the identity of the major puker in the market.

Which Whale Got the Margin Call?

In many ways LB hopes it is J Paulson, whose role in the original crisis was far from angelic. But we will know soon, and whichever set of pr*cks it is, they probably deserve it.

Leftback said...
3:27 AM  

Iranian government TV running the headline: Iran encourages Britain to show restraint with demonstrators.

Hmm... Why are they are so interested in these UK riots?

Anonymous said...
5:28 AM  

Now, Mr Market ... please chase this all the way to uhm, 1250?


CV said...
8:16 AM  

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