Tuesday, October 18, 2011
TMM went to the gym last night. It's been a while. Starting again is always worse than starting for the first time. Any sense of achievement isn't new, it's just getting back to where you knew you once were, so is just hard toil. Knowing what lies ahead makes it so much harder to walk back through those doors. But it was done and it was as depressing as anticipated. Fitness levels depleted and now feeling rubbish. We would have liked to imagine that Merv feels the same on approaching inflation data each month, he knows he hasn't done enough and he is dreading the monthly weigh in.
Now TMM may have put on a few pounds since their last visit to the gym, but their gains are nothing to what Merv has put on in UK inflation over the past month.
In seriousness, TMM must admit they are flabbergasted. Flabbergasted that RPI is north of 5% for what seems like the 20th time in the past four years. Flabbergasted that the BoE has printed even more money. Flabbergasted that inflation expectations have moved higher, but that Linkers are below their historical averages. Flabbergasted that Gilt yields are on a 2%-handle. But most of all, they are flabbergasted that wage growth has not responded to the move higher in inflation. TMM presume this is a remarkable result of the combination of the labour market reforms of the 1980s and the establishment of the independent BoE (something politicians on both sides of the House can be proud of) allowing a real adjustment of the economy to be cushioned by negative real interest rates. An incredible achievement. Perhaps we are back to the world looking like the old-fashioned Phillips Curve.
Elsewhere it really feels as though the market is on hold (unsurprisingly) with the Europeans shitting themselves that they haven't finished their homework before handing it in at the weekend. Schauble already trying to buy time with a "well it's not very good and could do with more work, are you sure you need it now?" type comment. But we do also know that the class swot is always the one that says "well it's not very good" before producing a PowerPoint (spit) presentation that gets the A*. So .. Europeans .. class swot? or dog ate my hamster spliff heads? Tough call... hmmmm...
But as we wait the markets have become pretty dead and dead normally involves vols falling and carry creep resuming. But with prices falling again their has been an audible sigh from bears with the past 24hrs cranking up the majority view of "this is just a bounce to be faded". But TMM are still looking for the break out to be on the top side of risk and see the current sell off as a dip to buy on. Today's concerns du jour of Schauble and China just don't hold enough water to sink the world on. In fact the China debate is beginning to show up on TMMs DPI (Dinner Party Index) now that Evans Pritchard is getting his teeth into it. TMM are not on board the Chinese train to a hard landing. But more on that soon.
Today we are sitting tight but twitching to buy.