Wednesday, August 31, 2011

Nothing Exciting Happened Today

TMM get the feeling that the market is very well positioned for more bad news, which in the big macro scheme of things is just fine. The US economy is pretty screwed and until the great reckoning of wealth and cost rebalancing between East and West occurs, it will continue to be so. But we can't play a 10yr view everyday or this blog would become very dull with daily posts just saying "Still f**ked". Perhaps we should have a system of long term macro flags along our banner showing the 10 yr view which we hoist and rarely change.

But in the shorter term run of things, where we have to earn a dividend to pay the costs of our daily lives, we can't afford to just sit and wait for the great "F**ked trade" to pay off and that is actually the problem with playing the markets. The table is not level and the need to make a daily crust just to survive, or even to pay for all the infrastructure needed to trade makes the whole game biased against the player. As costs of entry are going up through taxes and regulation whilst the pot of returns is falling - dividends and bond coupons are effectively the only money coming into the game when interest rates are effectively zero with other returns just one side of a zero sum game. With this happening perhaps we should look for the amount of life that the financial ecosystem can support to fall, which is just what you want if you are a western government determined to rebalance power away from the evil banker and speculator. But as the financial pond dries up the fish within it start flapping and thrashing trying to survive. The UK banks are today protesting against being allowed to die (or be sliced up alive) and smaller investors are desperately looking for yield on their investments. In the big picture this is probably a good thing. You can't have a country running on the gains it hopes to make at a Casino despite the Equity bubbles and Housing bubbles doing their best to prove otherwise. Of course owning the Casino is a different matter altogether, and the major financial centres of the world have brought disproportionate wealth into their domicile economies. Unfortunately in London's case Vince Cable doesn't seem to see it that way and is determined to go Holy and upset the tables of the money lenders, no matter what revenue they may bring into the local economy.

The financial blogosphere is also doing its best to whip up action and, similarly to the main stream press, appears to thrive most on sensationalism and bad news sensationalism in particular (Hero Zedge - looking at you). The same signals are being picked up in TMM's IB chat indicator, with banks providing about a 20/1 ratio of bad news headlines to good. And that isn't just because there ARE 20 to 1 bad to good news stories out there. We mention this because we have noticed a trend in this blog's comments. Currently if we mention anything bearish the comments are alive and buzzing and article referral is rife. If we mention anything bullish and the markets then fall the comments are again rife (normally with goading). However if, like yesterday, we mention a bullish tone and the markets stay flat or creep up, then their is relative silence. Now is this an indicator of market positioning or not? Or just a reflection on the lack of any mention of anything frighteningly terrible?

So here is today's news:-

  • UK August weather was unsettled and the coolest since 1993.
  • No riots in the UK today, despite no action yet being taken to change society.
  • Seismic activity around the world didn't cause any disasters.
  • Italian unemployment came out at 8% exactly where forecast.
  • The equity markets moved a little bit higher.
  • The Eurocrats have not issued conflicting statements today.
  • Libya is about to be reunified under a new leadership.
  • The London Olympic construction is ahead of plan and on budget.
  • Bill Gross didn't surprise the market when he used nonsensical and factually inaccurate analogy.
  • No Republican contender has vowed to open a can of whoop ass on the Beard.
  • The Oil price is virtually unchanged from where it was the day the FOMC announced QE2.
  • Arsenal are still useless.
  • Pro Farmer came out with a constructive 148 bushels per acre for this years corn crop. bang in-line with what was the most accurate reflection of their ear counts in the seven states they covered.
  • TMM have a nice cup of tea, with a biscuit.

And finally, news from a year ago. 30th August was the start of a 6 month equity rally.

Lets see if that lot lights up the blogosphere!


Anonymous said...

Loving the listless post-holiday trauma... are you orange?

Anonymous said...

Does anyone have any details on the greek ELA penalty rate? Apparently it's 1.75% + 125bps

Polemic said...

Anon.. you should be a psychiatrist. Well spotted. Not so much orange, or dark tan.. more milky tea colour.. see pic above.

Anon 2 . Sry no idea, forgot to ask while I was out there. But I can tell you the price of squid in Ios if it helps?

All.. yes post holiday blues...

Secret--Sauce said...

Not sure if it reflects market positioning, perhaps human nature. Is man not by definition an optimist? My IB chat is far less than 20, but I have noticed that the incidence of conspiracy theories, teotwawki prophesies etc. is on the rise.

O, and word choice is also key. Try this lede: "Nothing Golden Happened Today." Now that is an exciting word that never fails to whip up the blogosphere.

Anonymous said...

'C from C'
says' ,the market has the same lethargic post coital as your holiday makeover. It's been a wild wild ride .We've seen shock and been awed ,but unless someone tells us their is a planet destroying asteroid arriving day after tomorrow what can top all that? I mean awful consumer data ..big deal ,seen it before...manuf data falling off a cliff ,wake me up when we're on 3 day weeks.

It's an emotional void spot in the stratosphere where we go from .."orgasmic darling" to "let me sleep for gods sakes."

Not for too long though. Markets don't get paid to sleep although they really should try it more often if they want to keep a retail client base.

SirArthur said...

I agree on Zerohedge. Been considering removing their angry, pointless rants from my Google Reader for some time.

I strongly disagree on Zero Sum Games. The Forex market is clearly a ZSG (there's no central bank of Alpha Centauri) with a very large number of players.
Equities however are clearly not. If an issuer issues shares at 10 and they go up to 50, then the original holders (provided they don't all try to sell at the same time) are 5x better off and can use the shares as collateral to monetise those gains.
This process also unfortunately works in reverse, meaning the equity market is in effect a giant multiplier - RBS on steroids.

Non financial equities clearly would like to go up (cheap and high-yielding), but no one can see a solution to the Eurozone split-up (even Martin Wolf has given himself a week to think about it). The possibilities are truly horrible at the scary end.

So steer clear for now - but I wouldn't be short.

Leftback said...

Laughing into my coffee, old chap. Especially about Arsenal and your cuppa Rosie... yes, The World Is Not Ending despite noise meters and media squeals all reading "Aaaaarrrrrggggghhhhhh !!!!!", and so we remain strategically bullish in the medium term.

However, a note of caution. This is Ye Weke of Markette Magick following the Jackson Hole Tri-Wizard Tournament, with rumours of Eurobonds and bank recapitalizations, EuroTARPs et al., although they have done nothing.

But the fact is, in the wake of your Bank Holiday and our hurricane event, the trains are half empty in NYC and the big boys are all out on the Island fixing their beach houses, leaving the 3rd XI (or the JV as they say here) on the desk and volume is very light.

Over the years, fading the pre-Labor Day trade has been profitable. It's quite likely they will come back on Tuesday and whip up one more round of TEOTWAWKI panic selling before everyone piles in on the long side for the autumn performance steeplechase.

Looking ahead we seem to have settled once again into the Macro Man staple of "bad news is good news" (b/c of QE3 and DGDF) that is reminiscent of 2010. We expect this charade to continue, and a lot of money managers to be chasing this market as reportedly 99.9% of them are lagging their benchmarks. [Looking at you, Mr Paulson. Wanna sell some GLD? Well, ready or not, we know you have to!!]

Anonymous said...

+1 on ZH

Ambointhehouse said...

A Man that sounds like his had shitsandwiches for lunch today, don't worry your in good company, I haven't missed a day in nine years.

Leftback said...

Relax, chaps, Cable has been subdued by the House monitors and given a sound lashing by the prefects, at the insistence of the guv'nor. British banks not bending over until 2015. So it's four more years of rape and pillage..

British Banks to Rape and Pillage Freely Until 2015

That should be fuel for a bit of a FTSE rally... oh, it was leaked already over the bank holiday weekend? How shocking.

Seppo markets looking a bit soggy into our close. We'll see what the ISM brings. We know TMM loves a good ISM.

Intrinsic said...

This week looks like a calm after the storm, or the eye of the storm or calm before the storm. Take your pick.

Just with Cable, dosn't he realise that once you loose the status of financial capital, you are most liekyly not getting it back. Very short sighted I think.

DrChaos said...

"but no one can see a solution to the Eurozone split-up (even Martin Wolf has given himself a week to think about it). The possibilities are truly horrible at the scary end."

Is a solution economically difficult or politically difficult?

Suppose the euro didn't exist today, and one wanted to design a similar system based on factual reality. What would it be?

In my mind it is obvious: a Northern Euro, called the deutscheplusmark, and a Southern Euro, called the denarius, the coin of the Roman empire. Conveniently enough the core provinces are Hispania, Italia, and Hellas. Maybe Tripolitana might want to join.

Just like Microsoft, the euro is long overdue for a voluntary breakup.

SirArthur said...

I believe your idea of a Northern and a Southern Euro is completely impossible.

The reason for a Euro breakup would be that certain governments are unable to fund themselves in the Eurozone capital market. They would also have no ability to resort to printing a little money to keep things going.
This would force the countries in question "off the gold standard" - IE force them to return to a national currency.

The obvious issue with this is that it causes an instant run on the banks in the countries in question.

The further difficulty is that the lender of last resort is a Euro-Institution (the ECB) which would not be able to function in the event of a breakup of the currency.

The further-further difficulty is that say a de-Euro-ed Sovereign's Euro denominated debt would probably end up being worth very little, causing trouble in everyone else's banks.

The mess that would follow is actually hard to comprehend.

It is also gaining a sort of terrifying inevitability.

@Polemic; Any thoughts on this ?

Leftback said...

As usual, the Euro debate focuses on Greece, as the immediate fly in the ointment, but the real problem is the giant Spanish cockroach, Italy being a problem of a smaller dimension. A look at the Greek 2y today will show us that default is already priced in, and bank stocks in Europe have already reflected the losses. So we can assume that Greece will be kicked out, undergo a massive devaluation and return to the drachma, but the banks will be recapitalized, or nationalized or in some way TARPed. Pour encourager les autres....?

The real question is how does Europe deal with the ongoing debt deflation and near depression in employment in Spain after the biggest asset boom and bust in Europe since the Tulip craze? It is after all, only countries of the size of Spain that threaten the Euro, Greece and Portugal being issues of a size that can be contained, fudged or simply booted. This is an almost exact homolog of the US dealing with California, except of course for the fact that Texas can't vote to tell California to f*** off, whereas Germany might.

In other news, Brazil cut rates, perhaps not such a surprise as the YC has been inverted there for months. News out of Australia suggests that a decelerating China and a popping housing bubble may be about to deliver an underwhelming holiday season Down Under, no matter how many sweating Santas are stationed in sweltering Sydney. The Chinese numbers were bad, but not apocalyptic, as we await the ISM in the US with bated breath.

Anonymous said...

'C from C'
says' when all the chest puffing gets' done with in Europe I expect them to come through and do what they need to do to keep the staus quo inplace for all the major countries which obviously does not include Greece. The latter may be the one and only one exiting the Euro under controlled circumstances.

There is an awful lot of game playing and territorial pssing going on,but at the end of the day they'll do a US and find the way through because not to is a destructive outcome politically for all of them when the consequences of not doing so become transparent.

As a starting point Trichet marching out won't hurt ,because he's got no feel for cyclic market behaviour whatsoever.Hard to believe someone can keep making the same mistakes he does on rates without seemingly learning anything from past experiences.

So it will be a huff and a puff ,but no one dares to blow the house down ,because they are all sitting underneath what would be an economic avalanche.It isn't that the long run consequences might be so terible.Indeed I suspect no one could really quantify them past a guesstimate of no use whatsoever.The immediate uncertainty factor though would be tremendous and the economic freezeup of that can't be anything anyone wants to see.

But What do I Know? said...

The first two paragraphs are the best synopsis of my feelings I've seen. . . Well stated.

Leftback said...

C in C...

LB concurs with those thoughts, very eloquently expressed. Greece will be expelled, as an example of what happens if you step out of line. It is priced in.

JCT's interpretation of his mandate means he is pretty much an automaton, hiking in response to his inflation data, hence the large policy errors that have resulted, the recent rate hike certainly exacerbated August's short-term liquidity problems in Europe.

abee crombie said...

financial markets are complex systems that are by design unstable. The problem now is that we are on edge b/c all the settings for a crash are in place, however should a crash not materialize, this is also the best place/time to buy as everyone will chase it back up

What to do?

zero hedge is useless now. one of the best parts of TMM is the comments....i wont even comment on the drivel on ZH's

Anonymous said...

Rising fears of counterparty risk

“One sign of worry is the increasing reluctance of banks to use their balance sheets to facilitate trades, which has hit sectors from corporate bonds to the short-term repurchase market, where there is $1.6 trillion (980.8 billion pound) in triparty loans."

"...banks have reduced activity in the intra-dealer Treasury repurchase agreement market by 63 percent since the end of June, according to Barclays"

2008 all over again?

SirArthur said...

I've just found the answer to all the problems...