Friday, September 23, 2011

PIN'ing the Blame

It would appear that the knife has stopped falling. Whether or not it has been successfully grasped by the Kevlar gloves of the Asian central banks or whether this is just a moment Matrix style slo' mo' is yet to be seen. But the action of the Asians in pretty coordinated FX intervention this morning has killed momentum, leaving the market a bit deflated as high emotion fizzles to "now what"?  TMM have often mentioned the PIN (Price Is News) function of price, and it is beginning to feel like that right now. The latest falls in prices were pinned (no pun intended) on the FED saying that growth is gloomy and a post-twist let down. But TMM feel that the moves in Emerging Markets were much more relevant to yesterday's moves as a potential opening of third front of the current two-pronged Europe and US-focused global woe story. What is more, a story that involves the saviour of the world having its own cancer was so terrifying that shouting "YOURS!" and running away screaming could be seen as a natural emotional response.

We come in this morning and our way to work was dominated by radio reports of the usual x grillion of wealth being destroyed and how the price falls in the markets are indicative of how terrible things are. This was exemplified by the Reuters headline "Market's 3% Plunge suggests deepening worry". But, as we have mentioned before, the longer the PIN function goes on the more it feeds into the real economy via sentiment-influenced indicators such as Consumer Confidence, PMIs etc and reduced credit availability, and then the whole lot engulfs itself in a vortex of descent. This is where we stand with Europe at the moment, with it heading for recession unless the Eurocrats pull a rabbit from the hat, but for Asia we feel that the PIN function is even greater.

With politicians all around the world proving how the whole dire process of mediafication of politics has produced governments of spineless, self serving, opinion poll watching, issue ignorant, middle of the roaders, it really can't be long before the rest of us have to roll our sleeves up and fix it ourselves. "Right, come on lad's, they haven't a clue". Greece's recent solid commitments to urgent austerity reform then backed by this sort of news "Greek Parliament Vote on Austerity Postponed Due to Insufficient Votes". Yes, its urgent, but we won't be turning up to vote as we fancy a lie in. TMM have to suppress their rage in these instances. Meanwhile the stalemate of intra-European lending goes on. G20 hinted at no more Lehman-like events but what is really needed is them shouting it from the roof-tops combined with an actual recapitalisation of the banks, rather than this tortuous nail pulling of half hearted news headline hints, the last of which shows just so much mindboggling stupidity as the EU Commission says that the banks don't need a faster program of recapitalisation.

TMM are surprised how things have got so bad. Especially as things that used to be seen as good are now perceived to be  bad as well.

The price of lots of "stuff" has gone down. This is bad news because the people that own the stuff are made to look sillier than the people that don't own the stuff. Most people own the stuff in some way because that's the way the world works, so most people look silly and they don't like that. This is bad.

The prices of stuff that we use every day (commodities) has also fallen. This is bad news as, though it means we need to spend less on this stuff or could afford more of it, it  implies that the other people that we were moaning about buying all of it leaving none for us now don't want it anymore. Which is bad.

Inflation is dead. Despite whatever was said in the 70s and 80s we now really like inflation. So it not being around is bad.

Interest rates have fallen to practically zero. This is bad news as it means that no one wants to borrow money. We would apparently much rather borrow at 15% because this would mean that all is well with the world (which may explain why the Greeks can't see the problem!). But this is bad.

Particles have been found that are able to travel faster than the speed of light. This is very very bad news as it could prove that everything we believe to be true is false.

European and US politicians are too busy fighting their own agendas rather than grasping the nettle. This is very bad news indeed as it could prove that everything we believe to be true is true.

Gold is going down. When a religion dies things are very bad.


VandalsStoleMyHandle said...

Similarly, Fed's downbeat outlook seen to create news, whereas it really just reflects the news.

Feels like we're in an echo chamber...but, hey, it was ever thus...well, at least since 24 hour CNBC and Tw*tter came on the scene.

Secret--Sauce said...

Just when you thought it was safe to go back in the water - batz! - 25 handles on the spoos in 2 hours. Not sure what kind of a rabbit the G20 can pull out of dat der hat, there should ain't much of a brain in it,

Still, the ability and desire of politicos to kick the can down the road and stop hemorrhaging with band-aids is not to be underestimated. That doesn't mean a solution mind you, but that we live to fight another day before the real carnage ensues.

Timing is the hardest part of dis biz.

abee crombie said...

get ready to buy some 'stuff' on sale soon.. I'm thinking another 10-15% lower is a great buy

but watch out till we get there

Anonymous said...

C says'
Abee ..indeed ,but right now we are in the playground and the children who have been blindly follwoing a trend have woken up in apace the last few days where everyrthing they thought they knew has been reversed becasue they actually had no fundamental anchor for what they were doing at all other then follow the trend them and assume no moatter how far it goes you don't have to adjust your weight to it.If this Industry really cam with a license that reda 'fit for purpose' mpst of these people wouldn't be able to hold one.So now regardless of models/technicals those theme positions are being unwound and it's got momentum going for it because really there is no upside trigger insight to stop it until they run far enough into cash to appease whatever gods orders they are following now.
Policymakers I suspect will come back into the fray at some point,but they're far too slow to do much about this process until it runs out of steam.Indeed it's partly the misinterpretation of those policymakers previous monetary messages that is getting puked all over the screens right now.
The market tell this morning was the miners sector took it right to the hilt yesterday and still couldn't get off it's knees to bounce at the open today. In fact forget banks other than they have now been joined in the race to the bottom by all things 'tangible' associated with growth.
Telephone call earlier from Mai Fking r's urts in Peking complaining about trying to pass copper bullets at his morning twoilet and wanting to know if I could Fed Ex him some noodles ,but Fed Ex have decommissioned that line due to unprofitability !!

Anonymous said...

I could use a spellchecker here or edit function as I type like an idiot

Anonymous said...

C says'
Got to be off shortly,but before I go ..don't get sucked into this crap.I'm not actually uber bearish in a fundamental sense.Once these idiots have done selling what they cannot afford to really hold and the policy makers have been given a clear and explicit instruction regarding the future their current policy is depicting then we are going to have some really nice stuff to hold.Which means as usual the idiots will have sold what they should hold and be holding what they don't actually want..nothing changes.

PPM said...

Gents (and ladies), no one ever really understood the consequences of deleveraging. First it was the ABS that was shaky, and then the banks got infected, and all was saved in 2008/9 by government bailout. We had a brief respite, now we are at the point where governments are at their limits, and can't keep adding debt at an accelerating rate. If you can't add debt at 3, 5 or 10% of GDP per year, there has to be an equivalent contraction in aggregate demand, because you are lopping off 3, 5 or 10% of the economy.

There is a lot of talk about margins coming off their historic high, but there are also going to be revenue challenges. You can't have huge reduction in aggregate, debt financed spending happening concurrently in Europe and North America without aggregate demand getting kicked in the balls.

There is no way that S&P EPS can remain anywhere near current levels. Worse for Europe, and Asia will follow, with a lag.

abee crombie said...

interesting comments from Rio Tinto that some customers were asking to delay shipments.. Another canadian coal company said something similar.

No doubt Cof C.. copper, gold etc are the great LT holdings but MoMo tards think it will go in a straight line to heaven.

Regards to S&P EPS.. even if it drop to 80 a share (20% drop) current valuation is still ok. Financials wont drag down earnings by the same degree this time.

for now the sell computers are in charge. stand clear

Anonymous said...

Latest CPI from Canada, 3.1%Y/Y. Negative interest rates. Carney's been warning, since 2008, of int. rate increases! Ex-Goldmanite!

Fixed incomers are fried, especially the old who can't play the stock mkt.

72bat said...

"Particles have been found that are able to travel faster than the speed of light"
the explanation for HFT trades executed 190 milliseconds before their corresponding quotes?

Vasastan said...

Re 15% rates: I think there is something to that. Sharply reduced interest rates apparently tells people "Things must be bad, better hold on the cash" while 10% rates instead says "Inflation will eat the cash, better invest in that business/bulding/invention fast".

Re FTL particles: forget the HFTs, when can I buy a spaceship ticket?

CV said...

God almighty ... gold and silver really go when the go don't they. Of course, Dr C is having a screamer as well today.

CfC has already talked about kids playing with leverage here and this is certainly what we are seeing . They are all being called back home to mom for a spanking.

Eventually the central banks will cave in to the momos obviously. As for the G20, well colour me unimpressed in advance. A committment to commit to doing something at some point is what we will likely get.


Leftback said...

Going with the PIN concept, the DAX closed more or less flat, but above 5000, and even today's intra-day low was above the previous low. So by the PIN principle, that's madly bullish.... but we need a SPX close over 1100 as well.

We can assume that the Fudge Factory™ will be insanely busy this weekend, this time it will be operating in Washington DC.

As Polemic points out, Bucky's run does seem to have been terminated in Asia overnight. Trading ranges intact? This is what has been learned from 2008. Kill sharp dollar rallies stone dead, before the carry unwind threatens the fabric of the universe.

By the way, we think many people have missed the positive impact on the US (not to mention the indefatigable Connie Consumer) of Big Ben's re-entry to the mortgage bond markets, and of soon to be falling gasoline prices.

As for the $80 and below EPS, guys, you are either going to be early or dead wrong. But 2013, that's another matter. Between now and then, Obama and Ben will take it in turns to squirt lighter fuel at the sputtering coals. Sure, a few bystanders will get burned, but there will continue to be burgers !

Leftback said...

Gold and silver are a bit of a religion. It's tough to see people, losing their religion...

Losing My Religion

Oh, now I've said too much....!!!

CV said...

You will jinx it LB. Gold is close to the 100dma which has been a very good entry point in the past ... (not withstanding that some here would note that technicals are off at this point due to liquidation/run for the exits dollar short/long all else squeeze.

Seriously though, gold does well when real rates are negative and they will remain negative for a looong time. Of course, blow outs are guaranteed as well, now ...


abee crombie said...

good price action today in europe and treasuries. I feel like buying some br real

LB, I dont know what is wrong with bear case scenario planning of $80 EPS for spoo's? what margins are going to contract massively?

Double top in gold, and silver chart just looks ugly.

Leftback said...

I closed my silver short, Claus. A brief but exquisitely pleasurable interlude, much like viewing Karen's ankles. Happily, we can anticipate many repeat performances in the future.

CV said...

Well played LB, i.e. not going short into fudge weekend ...

Leftback said...

Abee, US economy is a great big ship and it just doesn't turn on a dime. US businesses have been running lean and mean and not hiring. <$80 would be a big drop, too much too soon.

We had a mini oil shock in the Spring/Summer but we didn't stop commerce dead. Remember that the formerly bloated finance/RE sector just isn't as big a contributor to earnings now.

abee crombie said...

LB I agree..I was using $80 as a really bear case.. at 13x you get 1040 .. where I would like to buy.,, pretty much around here

my only problem with S&P EPS is that the multiple on most large caps is low, while high fly tech like CRM , AMZN is still out there. Would want to see a sell off in those names before I got really itchy fingers

Leftback said...

Yes, LB agrees there is amazing misallocation of capital. The reflation trades are getting royally hosed this week but solid income producers have been sold as well.

LB hates the vanity retail, the etailers, and all the tech/biotechs, many of which are little more than Ponzis. AAPL might be worth the money but the NAZ is full of trash.

BTW, there is some very serious pain at The Blog That Shall Not Be Named today... don't look if you are faint of heart....

willem said...

LB on selling silver, "A brief but exquisitely pleasurable interlude, much like viewing Karen's ankles." Classic. My laughs for the weekend.

Leftback said...

I am not usually a big fan - but this Krugman article was pretty much on the mark, especially with regard to the ECB's role in the debt debacle, and remains so:

JCT's Impeccable Disaster

At the end he says, when are they going to cut rates and buy the debt? IOW, they must repeat the FED's 2008 actions by taking "sub-prime" bonds on to their balance sheet. They need only do this with Greece to fix the problem of confidence that has infected Spain and Italy and created an electronic bank run on France and Germany. Portugal is a story for another day.

Robert in Chicago said...

How is it you've gone an entire day without using "vengabus"? Everyone is primed for it!

willem said...

LB I wholeheartedly agree. Interesting note from Mansori that he referenced today as well.

Seems that part of getting the solution right is some EZ soul searching as to what caused the crisis to begin with. I wonder if we're getting closer to crossing that bridge now and am tempted to pick up a little exposure to leveraged long EUR positions that have been absolutely decimated as of late.

Anonymous said...

C says'
I'll take a bearish plunge anyday rather than Friday motorway traffic.

I don't read too much stuff because it just clogs up my own thoughts,but that article from Klugmnn is it is not much different to what I've been outlining ..we have political ideological barriers combined with a central bank that though not strictly Austerian does have a tendency to be rather robotic in the way it slavishly applies itself to inflation meaasures without to much furthr analyis.The former is the impetus to creating the kind of momentum that gets an issue rolling (starts a f..g war) and the latter because of it's inate way of applying itself is simply the wrong backstop to have in place to put a stop to that war quickly.
I actually do believe they will get a Euro resolution that isn't absolutely destructive to the Euro and it's associated political system ,but I would put no money on it being in time to activate BEFORE a major pressure event.In other words it does not show itself to be proactive in the slightest,its record to date as been all about being reactive trying to fix whatever the latests blowup has been.I see no reason why that is going to change because that's the only way they appear to have of selling their intervention to the diehards and general public who are tired of seeing their productivity going to such causes. EG.. we did it people to save you..honest!!

As for the market I think the bank issue is subsumed anyway as it stands because there's still a lot of relative strength money in the Asian growth story that needs to be flushed out before we have rebalanced the effects of monetary intervention.
Just think of all the funds that started selling the idea of portfolio diversification into commodities and Asian/Chinese growth because the trend in historic investments had been so poor...they still have not puked it all back yet so I thnk we have more miners/oils/emerging stuff to come in fact I'd expect this to be a more significant contributor to further selling that the shelled out banks.Let's bear in mind here that of all the major economies that are high growth the one most exposed to Western austerity because of it's economic balance is China and that story is only on chapter 1 at this time.

Leftback said...

Thought about a punt but did nothing - I have enough long exposure for the weekend anyway, no need to play ECB roulette here.

Have a good weekend, all.

ntwsc said...

Yeah well, as Krugman concluded today, "I haven’t developed a full theory of the sociology going on here. But these organizations should be doing some agonized soul-searching, asking how they got it so wrong while posing as high priests of economic expertise."

Meanwhile, I'm well into The Tipping Point now (soz, I haven't a clue how to embed this stuff.)

Like the man says, ideas, products, messages and behaviour spread like viruses do.

Spanking weekend y'all.

Leftback said...

The always incisive and amusing Marc Faber telling it like it is on Greece, I liked the following: "I don't know anyone who owns Greek bonds", "If you are Greece you are stuffed..", "the rich Greek people in London have all of the money from the international community..", many other great lines here.

Marc Faber on Greece Part 1

Marc Faber on Greece Part 2

Manc Trader said...

Thanks for the Marc Faber links.
BTW what is the blog that cannot be named?

Leftback said...

Hero Zedge, mate.

Not much Eurofudge in evidence after the weekend meetings, not much encouragement for bulls, Tokyo open predictably shows catch-up selling for Thursday's drop around the world.

Last minute band-aids are possible before the open in Europe, I suppose....

Skippy said...

There is a huge sucking sound coming from Asia again today. The asset that wasn't supposed to go down is diving off a cliff...time to put on the kevlar gloves?

Not surprisingly liquidity is very poor, particularly in South East Asia.

Anonymous said...

C says'
Asia's got it's own mess to mop up now. It bet QE policy would backstop crap finance and it didn't so now many parties are going to have to work out that swap that substitutes bricks and mortars for pounds of copper and the need to eat.Unwind what they wound up.
That's why the Asia overnight sell might make Western opens look negative for some time. Main Western problem is still Europe ,but even there the banks have been so bombed out I have to belive that shorters will move on to easier pickings more concerned with growth.