You know the world has gone mad when...

Monday, August 08, 2011

When we entitled yesterdays post "Judgement Day" TMM really weren't expecting the final S+P close to be a portentous -6.66%. We are at that point in the panic cycle where omens will be looked for everywhere. Now, being totally honest, we have not gone and checked (because we really aren't that competitive) but we would suspect that the book of charting revelations is right now being scanned Nostradamus style for any backward fitting scary curses that will indicate on coming doom. It's over a year since we heard about that Hindenburg thing, the BattleDeathcrosstar Galactica and all the other "Don't be fooled by randomness" portents about to be thrown our way. But one thing we are absolutely sure of is that this is certainly the first time this has happened since the last time.

Rather than getting worked up in a lather about collapsing stock markets, collapsing yields, burning buildings and ineffectual politicians. TMM are settled back in the cheap seats for the show. For we have little on the books and know that the first drop of rain will have the riots over within minutes. The English NEVER riot in the rain, we don't know whether it's something to do with getting their hair or their designer hoodies wet or whether its just too hard to smash a window whilst holding an umbrella, but it's the best case we know for introducing water cannon. They don't even have to be that powerful, just giant sprinklers. Alternatively, we could just have an emergency Royal Wedding to rebind the nation. There are going to be some interesting mean reversions to 1981 London relative property prices in some areas of recent gentrification that have suddenly found themselves to be in riot floodplains. Hackney?.. Notting Hill '76?

But back to the US collapse. Come on folks, they are only shares, only the values of companies. If they fall and the world screams then they are only screaming because they made the wrong decision. It isn't unfair, it isn't unjust .. it just IS. Asymmetry of emotion to falls in stock markets is almost a self proof that they are a ponzi scheme in which to hide perceived wealth. TMM believe that for every gainer in a market there should be a loser. With Stock markets the press would have you believe that EVERYONE is a winner if they go up and EVERYONE a loser should they fall. That is the sort of argument that got us into the great housing bubble. "X grillion billion wiped off the market value of shares" will be tomorrow/todays headlines (note they never ever say on a rally " X grillion magicked out of thin air to make us all feel richer"). So what if they go down? it wasn't real money anyway it was just a perception of wealth against which to spend, lever, borrow and hope. We are in the age of the great deleveraging for the private sector. First we passed on the debt to the sovereigns and now we pass on the leverage, in return for which we will be made to deleverage.

As for the cry of "what about the pensions!" this can be countered with "If you cared about your pensions why did you stick them in the stock market?". "But we need growth for them to be worth more when we retire". Well TMM feel that the very idea that ALL pensions grow can only be backed by either the young paying for the old or the whole thing being a Ponzi scheme - or both. Perhaps we really should be looking at a $ per $ pay off between what we put into a pension and what we get out. Perceived growth is now being challenged on all levels, why does YOUR pension deserve to grow at the expense of someone elses?

Now back to the markets. Pick a number between 1 and 100, any number, You got it ? RIght multiply it by 9, divide it by 7. Now add your age in years. Done that? Now add that to 1000 and take away the the sum of the day and month of your birthday and we reckon you are now in possession of a perfectly valid target / support/ bounce point in the S+Ps which will be just as good as anyone else's Fibonacci/Elliot whatever based number. Now please file this away and should any of you be within 5 points of the actual base we would like you to call and let us know and we will hold you up as an example to TMMs amazing new theory which will of course be followed, Meredith Whitney like, during the next crash.

Because for now there is no point trying to pick "levels" as the world has gone mad and we know the world has gone mad when (thanks here to contributions in yesterday's comments)..

US debt is downgraded - so it goes UP in value
France has a higher rating than the US
Swiss ESZ1 trades at 100.01
French Sovereign CDS trades 20 bp through Brazil
S+P think they are William 'D-Fens' Foster in "Falling Down.
GBP is a safe haven
French Sovereign CDS trades 35 bp through Panama
You have to pay to give money to an American bank.
French Sovereign CDS trades 10 bp through South Africa
The Chinese accuse the US of taking the piss.
French Sovereign CDS trades 25 bp through Columbia
The Swerve is vindicated in his interest rate policy.
People find it a surprise that Apple has more cash than the US treasury - even WE have more cash than the US treasury.
Greece is financially more secure than Italy (well until the bailouts run out)
TMM think Gold is the only thing to own.
UK petrol prices have fallen only 2p over the past month whilst GBP has rallied and oil tanked.
US debt is downgraded and AUD/USD goes down.
The Facepalming Pit Trader Picture is back
Europe is on the edge of calamity and EUR/AUD goes UP.
Iran urge UK to restrain police.
DM/EM decoupling is AGAIN fooling all of the people all the time
The "3 of 3 of 3 of 3" crowd is back
Switzerland are Quasi QE'ing
Iceland is looking good.
It's only August.

Posted by Polemic at 11:19 PM  

58 comments:

Right Polemic, a mad world indeed.

Also sitting happy on the sidelines for now.

Claus

CV said...
9:07 AM  

Swiss ESZ1 trades 100.01, is that the end of the world?

Anonymous said...
9:11 AM  

Thanks anon.. thats really really stupid. Have amended post accordingly ..cheers

Polemic said...
9:29 AM  

juste done as ordered, and the magic target is ... Drrrrrrrrumspleez

1062

Dublin Dundee Humberside said...
9:54 AM  

You know the world's gone mad when your friend buys you a Jamie Oliver pink Himalayan salt grinder.

ntwsc said...
9:57 AM  

Right Dublin, but tell me please why are we crashing again?

US Downgrade?
Hackney Riots?
Eurofudge turning sour?
US Recession (surely this is well priced in or what?)

I mean, I can see why the world is still overlevered but even the uber bears crawling out of the woodwork need something to keep them going in terms of catalysts.

Anyway, I have cash and this is setting up a monumental opportunity.

CLaus

CV said...
10:03 AM  

Claus, I hear Jemima and Alistair have asked daddy to move them out of Haggerston Park PRONTO. Daddy is obliging, but that means he has to get rid of some Estee Lauders and Netflixes to bid on that Cadogan Sq flat. So there is that.

Agree it looks like an opportunity, and I like looking at the likes of DVY, XOP, even DRG. But then again, everybody on my desk is, so not sure if the pain move is not lower still.

Probably need to "average in" despite having mercilessly mocked that very expression over and over and over.

Dublin Dundee Humberside said...
10:19 AM  

Right Dublin, cost averaging in is a good bet here but as for my own holdings I am also a bit unsure. I have one stock which is down 35% (ouch!) and obviously I could greatly reduce my average price on it, but you know ... throwing good (and after all scarce cash) money after bad money is not a good idea.

Claus

CV said...
10:23 AM  

Claus, why is this a problem. Simply issue EFSF bonds to fund the purchase.

Dublin Dundee Humberside said...
10:48 AM  

Great post as usual, thanks.

Just one little thing - please don't be one of those people who spells loser "looser"! I know it's petty but I expect the best from you guys!

Anonymous said...
11:01 AM  

Oh I dunno ... looser and rebinding ... subliminal correlation noted.

ntwsc said...
11:13 AM  

Anon 11.01 .. oh dear yes one slipped through, even though the next line had a correct one. We could have just amended it and denied any wrong dooing.. but hands up.. as Clint would have said "Did I use 1 o or 2. Well to tell you the truth, in all this excitement I kinda lost track myself"

Polemic said...
11:22 AM  

Less of the Picolax next time and you'll doo just fine.

ntwsc said...
11:32 AM  

--Anyway, I have cash and this is setting up a monumental opportunity.--

Increasing hunger+shrinking pie=mean reversion.

Claus be nimble.

PP- the plural of loser does remain looser's, however.

Charles Butler said...
11:36 AM  

Right, thanks Charles. Our "models" suggest that between now and 3 months out is the time to start looking into and buying, so nimble is the play for now. I.e. if today is like yesterday I kind of know what will happen tomorrow :).

Also, allow me to counter some of the more cynical points in today's TMM entry. I mean, absent storing your money under the bed or buying fine art, gold or whatever the new currency du jour is what us salarised retail twats can realistically hope to do is to put away a little money each month and stuff that into some shares/investment/mutual funds we think will do well over time (i.e. 20-30 years). Calling this is ponzi scheme is fine of course but please advice alternative measures for the little man to earn his way through life?


Claus

CV said...
11:46 AM  

Nice to see the Yen back at pre-intervention highs.

Anonymous said...
11:50 AM  

Lots of mean reversion going on out there. Rain may stop the riots in UK but the London Frontier Housing Market is now officially dead.

Jemima is already packing and going back to Mummy, leaving Jez (used to be Jeremy but, well, you know, just bought a hoodie to fit in, park the suit for a while) to run the estate agent office and pay the mortgage on the flat. The blokes at the corner pub are laughing...

Leftback said...
12:32 PM  

DVY yield close to 4% probably didn't escape a few people's attention last night. The Great Rotation play will be next. Goodbye, reflationary vehicles...

Leftback said...
12:33 PM  

Claus - long News Corp/short Moody's. Virtually indistinguishable in fact, the former will be protected by freedom of speech stuff, whilst the other will be put on the rack.

Risk here is that the ratings agency buys out Perez Hilton, for example.

Charles Butler said...
12:42 PM  

Some mREIT divies north of 20%. Does anyone seriously expect a rate hike anytime soon?

Secret Sauce said...
1:01 PM  

what is on your shopping list when the dust clears?

Thinking about HYG, EWG (DAX) and maybe some brazilian power companies

Looking for financials to find a bid before I throw mine out there

Cheers for the good skew trade ideas before... too bad I took them off before VIX reached 40... (25 looked good for summer..meh)

abee crombie said...
1:05 PM  

no point in choosing the bottom. Fed to cut rates and do QE3.

Anonymous said...
1:10 PM  

Well, in a strict sense I suppose all finance is ponzi finance to the extent that the future value of anything is expected to be greater than its present value based on nothing more than the passage of time.

An odd notion, that, when you stop to think about it - which I imagine few of us have done since B school. It may be nothing more than the fact that all of us have lived in a world where "growth" in all things is simply assumed to be a part of the natural order.

It doesn't take the lunatic raving of the likes of Harry Dent to realize that when the demographics of "western" economies shifted, the whole thing was bound to implode. Precisely when and how is just details.

Anonymous said...
1:14 PM  

And LB, what about the cappucino and croissants bicycle repair shop? You reckon they might have cashflow issues next year when done paying the repriced insurance premium on that gorgeous warehouse loft.

mReit - au contraire, people are once again fooling themselves into believing lower rates will trigger refis and therefore lower coupons. Not happening since credit is broken and people are equity trapped.

Dublin Dundee Humberside said...
1:14 PM  

Right, just so you all know, my "level" gives a range of 1093 - 1103, and today I have my lucky pants on.

Caveat emptor.

cpi65 said...
1:25 PM  

"Mr Trichet is accused of helping to conceal the full extent of losses run up by the then-state owned bank, Credit Lyonnais, nearly a decade ago, when he was treasury director at the French finance ministry." - BBC 1/6/03

I guess some things never change.

Anonymous said...
1:40 PM  

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

Won't ya just roll with it...they doo.

Ambointhehouse said...
2:05 PM  

Dublin,

Betcha Jez and Jem's Fair Trade World Coffee Lounge is back to being Joe's caff in a year or so.

"Morning, Bert".
"Two fried eggs, sausages, fried tomato and a cuppa Rosie, please, Mavis... luvleee.... 'ere, wot 'appened to them kids wot woz 'ere for a bit? Toffs, I reckon. 'e looked like an iron, if you ask me. Ponytail...'nuff said. She woz a bit of all right, though."

Call us cynics, for we are.

US mREITs are going to be OK, the world is not ending, except perhaps in the UK. Nibble away? Might not be good at the end of the day but it will look smart in a year or so.

Overnight lending rates to be lowered to help US banks weather the panic? Or is that over-reacting?

Rates Low for Extended Period?
Renewed Weakness in the Economy?
Inflation Risks Moderating?
Possible Asset Purchases?

I reckon we see all of those. Bernanke knows this is not the time to p*ss around.

Leftback said...
3:03 PM  

Hate to be that guy, but can someone tell me what the "3 of 3 of 3 of 3 crowd" is a reference to?

Thanks

WellRed said...
3:08 PM  

So are you still fooling around with old maid Anna Lee, or are you ready to man up.

btw, check out Ag vol - en fuego!

Secret Sauce said...
3:24 PM  

Epic post. Some clarity of thinking amidst the fog...

Anonymous said...
3:56 PM  

Mate, there's Anna Lee and her cousin Cimmie, then there's Cypress, Hattie and Arriella....

Got to watch out though, these ladies do like to sell themselves fairly often! This summer it was a good time for them to be out selling their wares and raising cash, with spreads widening and lower rates ahead. Some of these companies are going to have very good numbers next year. 20% yield, in a 1% GDP world. Eventually someone will catch on.

Oh wait, they are going to be "torched" by "higher rates" as the "robust recovery" forces the 10y to "5.5%" and "inflation gets out of control" and "Peak Oil" strikes terror into the developed economies as "crude heads to $250". I forgot the script....

The Bernank should target something useful today instead of just saying "we are going to f*cking print and drop money out of helicopters into the banks until the printing press breaks". But that's more or less what we have come to expect.

So much silliness.... but I guess deflation is hard to get your head around. Slow growth as far as the eye can see, grab some yield and sit in it?

Leftback said...
4:05 PM  

Hmm, I think LB is right re: Peak Oil. However, the last CPI reading was 3.4% YoY, where's the deflation in that? Why did the ECB raise rates, to fight deflation?

Anonymous said...
4:15 PM  

ECB raised rates because they are idiots.

Not to sound like the Swerve, but with the post Jackson Hole base effects dropping off in commodities (not to mention OECD austerity in full force), I don't think inflation is going to be that much of an issue in 2012.

Dublin Dundee Humberside said...
4:48 PM  

Inflation is so tightly yoked to crude oil and gasoline (which feeds into the prices of absolutely everything in the US through delivery costs), but with a constant and predictable delay. It is so easy to understand that you could write an equation to predict it, even if you have a Ph.D. There is no wage inflation or housing cost inflation (guffaw), so no other component is present.

The ECB rate hike was a massive policy error made by tools. It's hard to wait for commodity bubbles to pop but they always do it on their own. Hiking rates actually compounds the slowdown that was already underway due to higher fuel costs.

It's not f*cking brain surgery, is it?

Leftback said...
5:00 PM  

And now the man with the hanky and the lips is saying this is the worst crisis since WWII.

P'raps he'll be waving it soon.

ntwsc said...
5:44 PM  

through mid bullshit? & that s all folks....

Anonymous said...
7:22 PM  

Rates to stay low for the next millennium, and mREITs looking quite healthy against that backdrop. If you are shorting those stocks, Mr Shorty, I think you are going to have a very sore bottom indeed before long.

I see the energy funds are still committing seppuku. Another lot of margin calls at 3.30 and we will see all kinds of bargains out there again. The difference today is that the trash stocks like BAC are up.

Sharp bounce off 1100.

Leftback said...
7:50 PM  

1103.09, to be precise. It's a bit tense, isn't it? Let's see if we can get a day without a late puke.

Could be worse, we might be in riot gear in Salford. Boys in blue will have to take care, things are getting a bit naughty out there. After a few days of this brick-chucking stuff the real criminal element comes out.

Leftback said...
8:05 PM  

the dude who bought that last T note at 2.02% is probably not going to be very happy

the rotation trade is really going to hurt some people now that Japanification is fully priced in

Dublin Dundee Humberside said...
8:18 PM  

Hope so, Dublin.

Goldbugs will be next on the chopping block if we get some decent data and the dollar stops diving.

REITs soaring, this morning's pop out to the shops at 9.55 seems to be paying off. I'm having a blinder. Anna Lee is off to the races.

Of course, it's about time, innit?

Leftback said...
8:38 PM  

Anna Lee moving places. Soon going to be too late at that pace.

I am also quite enjoying the 3 figure reversion in Betty Canuck, and this even before the Swerve has gotten the chance to show us his revised GDP forecasts.

Dublin Dundee Humberside said...
8:44 PM  

VIX plummeting.

Yesterday's expensive puts are probably going to expire worthless. The real tell today was seeing the bank stocks staying up when the market tanked to 1103.

Energy puke might still have legs, oddly enough.

Leftback said...
8:47 PM  

It was Anna's CFO buying 1k shares what did it.

Who shorts a stock that has a 20% dividend you need to replace? I guess that's a conviction call.

Don't think the call on gold is so clear cut, tho.

Secret Sauce said...
8:55 PM  

No idea at all on gold. Just like to annoy people.

:-)

Leftback said...
8:57 PM  

Ooooooohhh.. global squeeze of biblical proportions underway. we could be shaking hands with 1250 by the end of the week.

You don't want to look at Mr Shorty today. My, that was a lot of leverage. Nasty.

The question, as always, is now: What Next?

Leftback said...
9:04 PM  

bro, no axes here. gold is just a trade. both the bears and the bulls have legitimate points. (my divining rod seems to be broken.) in any event, that air pocket going into the close was curious.

take care over there. if you need help, give a shout - we'll send the little frenchman.

Secret Sauce said...
9:06 PM  

"the rotation trade is really going to hurt some people now that Japanification is fully priced in2

Yes not going to feel so treasured shortly shortly.

Anonymous said...
10:37 PM  

Riots in Manchester, pretty serious. Thank goodness it is supposed to rain tomorrow.

TMM, in view of the UK situation, isn't harsh austerity going to be off the table? Time to bash Betty?

Leftback said...
11:37 PM  

I think austerity is damned if you do, damned if you don't anyway. If they stick to the plan, growth is going to be savaged, and that in turn means low rates as far as the eye can see - and the MPC increasingly moving towards Posen's position.

Question is more - against whom do you sell it? I like the Canucks (can't bring myself to chasing some emmenthal), but then you probably get murdered if you do indeed have a US recession on your hands.

Dublin Dundee Humberside said...
11:52 PM  

Suggest that riots are nothing to do with austerity. It hasn't been implemented yet. The threat of austerity may also be keeping the UK from becoming another italy, spain or US.

Media doing a murdoch on the riot stories. Think they past their worst. Perhaps legacy is a lurch right in the politic. Own goal for faux poverty riot excuses.

Buy betty, she is as sound as a GBP

Polemic said...
12:09 AM  

Comedy article of the day below.

I won't bother skewering this, we can all drive a truck through the logic and Mr Market demonstrated the fallacy of the argument today.

http://seekingalpha.com/article/285833-time-to-sell-out-of-mortgage-reits

Leftback said...
12:38 AM  

guys I would like to get a singned copy of this post and frame it. will pay for it! :D
just one small addition. at some the demand for paper became so great that talented people eventually found brilliant ways to create it out of thin air, rather than wait for markets to go up, with the use of complex derivatives. you take the same "mark to market" trick that creates and wipes out grillions of dollars every day, you raise it to the power of 10 inside complex models that rely on obscure and illiquid market parameters, and you got yourself a machine that creates perceived wealth every trading day. banks were extremely competitive at building positive mark to market out of thin air and paying those involved in cash. now they call them toxic positions for some reason.

Anonymous said...
6:49 AM  

Anon.6.49 never had a request like that before, but can be arranged if u email me! Or you could just forge sigs on a print out....

Polemic said...
7:59 AM  

This may sound very stupid, but I thought austerity had already started in the UK. What about it then?

Anonymous said...
9:05 AM  

Italy and Spain rates are plunging. That's the real story here. End of the world has been averted for the time being.

Anonymous said...
9:15 AM  

Must be because the man with the white hanky yesterday called on Eurozone governments to do their duty.

More potty training then.

ntwsc said...
10:27 AM  

Anon 9.05 ..you are correct..sry.. they have started. But am I right in thinking that front line Police manning level cuts not started yet tho? Never post anything after midnight!

Polemic said...
11:09 AM  

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