Tuesday, August 02, 2011

Run away!

As a friend of TMM said today "This is like picking the best-loooking horse at the glue factory".

TMM have had a terrible July. Probably the worst month for ages. As anyone who reads this blog knows we have been whipped and chopped out of sight. We have expected economics to lead just when politics takes over and we have found the economics then kicks us in the teeth when the politics fades. Which is our own stupidity really, as we got caught up trying to read leads, when of course confidence and hence growth actually lags and self-feeds. If you are a European seeing bonds blow to 6%, are you going to be planning investment and growth? Nope. If you are an American on the edge of making some capital investments or purchases and see your elected good and great ransom the economy for political purposes, are you going to press the buy button? Nope. Which of course means that confidence collapses and the forward looking sentiment indices (PMIs and ISMs) naturally collapse and create a self-feeding cycle. Just as they do on the up swings. If the Western politicians are looking for something to blame for the current gloom they should look no further than themselves. These feedback loops of negativity are being exacerbated as, once they hit the market, the momentum algos and model funds kick in. We are sure we are not alone in noticing that the percentage of the market being driven by human thought and discretionary action has greatly diminished over the past month and now, with August holidays well and truly upon us, any sensible battered and worn human is heading off for beach-based R+R, leaving the battlefields of the market dominated by the machines.

TMM do remember interviewing a candidate for a job once and asking how they would react in a game-based situation to frustration and not being impressed by the answer of "I'd tell them I wasn't playing anymore and leave", but now they sympathise. TMM are looking forward to their own periods of holiday-based relief and as such, after applying arnica and salve to their bruised bodies are not planning on playing until they have rested.

With turmoil in Europe booting off again we would expect to cross paths on our way to the sun with the Eurocrats dashing back from their sunloungers to reinforce their Eurosolution. Indeed TMM were relieved to see that the French are taking this seriously and are recalling ze Gouvernement - until they read the date.


So with the models self-feeding on momentum and the only bids around coming from Asia, this jungle echoes to the roars of Terminator vs Predator, leaving TMM, like the other humans, running for cover in fear of that nuclear self destruct button being pressed.


Anonymous said...

Italian bond yields are now higher than they were in mid-July when things were supposed to completely fall apart.

The spread between Italian and German bonds is now at a far higher level than in July, pushing towards 4%.

There was no "they weren't absolute suicidal retards afterall" relief rally.


Anonymous said...

'Confused from Cheltenham' say's about time old son.You've a long history here of being macro and the whole good at it,but if you don't mind me saying so you've been sucked in this summer by the noise and not really seen the overall shape of events developing.

Bruce in Tennessee said...

Actually, it is now the endgame and we've foolishly sacrificed a rook and a bishop with nothing to show for it. We need an Economic Abe Lincoln, just as we did in the Civil War. And not just in the US. Germany has led the way with their balanced budget amendment. Boom times will be less boomier and bad times less hang doggy if we all just spend what we kill. It will be damned hard getting there though. But it has to happen.

Nic said...

Most people I know have been completely mullered this summer.
This satan sandwich denbt deal sucks, just got a notch closer to Japan

Max said...

An oldie but a goodie:

Panic on the FTSE
Panic on the Nikkei 225
I wonder to myself
Could we ever see a gain again?
Square mile pub stool you just sit down
I wonder to myself
Hopes may rise on a bailout
But can it stop the stock rout?
So you run on
To the safety of the bonds
But there's panic on the floors of Wall Street
Hang Seng, Bombay, Shanghai
I wonder to myself

Burn down Bernanke
Hang the blessed maestro
Because the nonsense they constantly say
I does nothing to help improve my life
Hang the blessed maestro
Because the nonsense they constantly say

As the ARMs reset they just mark down
Unpaid interest compounds
Hang the maestro hang the maestro hang the maestro
Hang the maestro, hang the maestro…

Leftback said...

Not sure I really agree, Captain Mainwaring. I still think we are range bound and here we are approaching the bottom of the SPX 1250-1350 range.

There is something going on over here that happens every year, and it's called summer. The US always lays off teachers and other personnel every summer and then has to hire them again in late August and then retail usually brings people on in the Fall as well. So the jobs numbers will probably just surprise everyone and bloody well improve a bit (not August, but in September), just about the time that gasoline prices moderate, and then the resulting firmer dollar will make life just a little bit easier for the consumer.

Rates are still low as far as the eye can see, yields on stocks far exceed bonds, and corporate earnings are still very strong even in the face of a weakening economy. So from this perch, LB says:


abee crombie said...

LB cheers for the insight. You have been calm in the face of MM abrupt turinings. A few things I am questioning now

1) Why are so many european companies missing earnings? Is it all currency related ... is it a harbinger for US companies

2) Valuations outside the mega large cap are not so amazing. sure MSFT is at 10x P/E, but no so for mid size and small caps

3) EM looks to have rolled over but valuation there looks a lot better

4) never seen as big a dispersion from Chicago PMI and ISM as this one.

I'm still on the fences waiting for a decisive break of 1250...

Tyler said...

abeecrombie - are you looking at CHPMINDX minus NAPMPMI?

Bruce in Tennessee - not sure if we sacrificed the rook and a bishop. Monetary policy was only ever meant to soften the blow...as the beard says, it is no panacea. Expansionary Fiscal policy has definitely softened the blow and possibly done more. It is true that we haven't returned to high growth levels we saw in the past. But if you think this sucks, then honestly and thoughtfully consider the alternative of doing nothing.

in a sense, monetary authorities were (one of) the first to accept the idea that we are in a massive deleveraging cycle with a long period of below trend growth and there was nothing/little that could be done to avoid that. All they could do is ease the economy into that phase and try to make it as short as possible.

Ambo said...

When it comes to video clips you can find'em.

CV said...

I made a complete sucker punch on an individual stock today, but my macro trades are stationary at best and I must admit, that fatigue is setting in.

I mean, if we have to go to 1200, then so be it.

However, for now I am with LB on two accounts in particular.

1) Decline in headline inflation in h0211
2) Jobs will probably surprise in Q3.

Bottomline is that we are still range trading and before we break decisively the post quake nuclear holocaust lows, well


Anonymous said...

Indeed ,but the holiday periods are notorious for breakouts in any direction and then the computers hop on accordingly.Meanwhile from now until September is more than long enough for the aforementioned combination to cause havoc.
Might I also say that you are also citing what youknow to be the case for the US ,but I think the momentum is really building from Europe not the US ,but the US will be caught up in it anyway.In Europe growth looks like it has lost it's way due both the ECB and austerity.In effect tightening both monetary and fiscal policy before they could really afford to do it without causing growth to go tailspin.
This lopsided balance of play though if it results in a buy the dollar sell the Euro will cause problems in commodities and the unwinding there will drag indices down and then the technical people looking for 200 ma breaches and so forth jump in.
It's this one thing leading to another that get's the momentum going when all said and done.

'Confused from Cheltenham' appreciates you stuff ,but I also think you have had a summer of noise as well where the next few day rally appears more the concern than the larger picture.

CV said...

Well obviously anon 6.11 pm has evidence on his side today which is another +1.5% decline on the SP500. A further decline from here and we are below nuclear holocaust lows.

Clearly, the US economy is headed for a sharp slowdown if not a recession (note here, the EU17 periphery never left recession in the first place!). Obviously those piling into the short trade waiting for a crash should remember that it rarely happens when everyone expects it!

But -2.2% on the SP500 at pixel time is difficult to argue with.


Leftback said...

Dear Confused from Cheltenham, thanks for the insight, and yes, the medium term picture is certainly clouded and Eurobollox risk still looms.

We ourselves are apt to view the investing universe through two lenses, firstly the 3-10 day view of the swing trader, watching technicals, trading ranges etc, and second, the longer view over 6-9 months. So apologies for having seemed noisy as a result of talking out of both sides of our gob, while for the most part we have sat on our cash.

Abee Crombie, the austerity in the periphery and the strong Euro are indeed the problems for European earnings. A slightly weaker Euro will help, as soon as US data gets out of the sewer.

Short term, we think the US market is now oversold and it is close to support at 1250. In addition, the mass of new equity shorts (and bond longs) are quite vulnerable to the appearance of any decent data point at all. So we like this entry point here, with a decent chance of a sizzling summer short squeeze to deliver us maybe 4-7% on a directional punt.

Longer term, we subscribe to the New Normal of slow growth and low rates as far as the eye can see, which should continue to benefit corporate bonds, dividend stocks and other income plays. We also still like Japan's recovery, although this is predicated on non-collapse of the US consumer.

Your point about commodities and the associated unwinding is well taken, but that sequence of events, in our view refers to a later stage of truly strong growth in the US, which is a long way off for the time being. Markets peak and then fall, on good news, not bad. Likewise, shockingly bad data often mark intermediate term lows.

Leftback said...

Claus, wondering what your falling knife was... ?

LB has been looking at Nokia, not with a view to a long-term relationship (those Finns drink too much), but more with an eye on a late summer fling in the Midnight Sun that might still yield dividends (before they axe it).

Anonymous said...

Haha, US downgraded again by China's Potemkin village credit rating agency, Dagong Global Credit Rating Co.

Time for some F-22 sales to Taiwan...

abee crombie said...

Tyler i was looking at those indexes (though I havent been infront of a bberg for the past few days but just going off memory over the past several years.. wouldnt be surprised if there was a bigger dispersion but this one was still big)

Cheers LB for expanding on your thoughts.

By the way IG bonds rallied the past few days it seems like safety will be the play and the world isnt over just yet.. though I would like to see a bit higher spike in the VIX before jumping in long on some selected equities. Still holding my russell puts for now

CV said...

Hi LB,

I was actually in the right here. I was long OMX on earnings but should obviously have taken it off the table on the massive initial short squeeze. It ended the day on a much lower increase.