Friday, December 16, 2011
We guess that Christmas officially starts now. Most of the City will be nursing headaches after the most popular work party night of the year leaves its mark on the general consciousness. TMM however are mostly untouched having decided that a soft duvet, cool crisp sheets and an early night for ONCE was more attractive than ribald banter, bonding and bacchanalian pleasures. Must be getting old.
Momentum in the markets seems to have vanished in a puff of excitement and the tug of war between bull and bear may see more comfortable non-resolution if both sides just put down the rope and have a rest. We cannot really see ourselves writing anything of consequence until the new year as we wander off to various lunches, family events, or just doze in the traditional way at our desks trying to do as little as possible. Instead it may be time for a little introspection as TMM wind down for the year.
TMM, as you may have detected, is more positive on the outcome for Europe than many others in the market. Especially in the short term as we feel the issue with how to play Europe is really in the timing. To be fair TMM's long term view on Europe is pretty bleak, with most scenarios ending up with brick chucking and social unrest. But, much as one has to with one's own mortality, we have to look not at what the end game is but how we get there. We would like think there is time to enjoy what we have before our worlds end. That is why we don't just yet buy gold for the apocalypse trade or coffins because one day we will die and so it is we really cant play the Euro-cataclysm trade just yet. The timing isn't right. This is why we keep bleating on about the short term LTRO Euro fix. It may be an opiate for a cancer sufferer but in a high enough dose it could even produce a smile on the face of the patient.
If we consider that Europe's immediate issue is the funding of Italy an Spain then the LTRO goes a long way to plugging that gap in the short term. Draghi's comments couldn't get much more pointed towards their intentions and yesterdays comments that these special operations could be considered as QE were particularly pertinent in our eyes. Now if price is marginal then any solution to solve just part of the problem should see price recover and today the opiate appears to be working:
The argument against this is that the problem isn't actually solved and is rather just being stored up for the future. but we feel that the more that reasons to be short euro are hung on longer and longer term arguments, as the short term concerns are defused, then the more likely we get a relief rally. Whether the LTRO can successfully compost the toxic waste it takes in into nice fresh loam in the long term is yet to be seen.
Gold suffers the same fate, the more that short term reasons to hold it are unwound, the more the "hold" rests on the end of fiat money/coming of a gold barter system trade. For shorter term positions, longs either have to bail or push out the positional time frames. Haven't we all known/ done that where short term positions become long term ones as the price doesn't perform? TMM have therefore wondered what happens when the life of the position finally gets extended beyond the life of the holder. Well we actually have first hand experience of this. Back in the 1970s one of TMM's grandparents predicted that the UK Labour party, combined with the cold war and oil crisis would mean that gold was the only thing to hold to secure survival and so he bought gold sovereigns which were secreted, together with pallets of spam, sugar and curry powder (for when straight spam got boring), in the attics of his rambling house. His example to we grandkids has stuck and though we may appear anti-spamchucker, to this day our spouses are frustrated by our tendencies to procure for the future. But, despite this, when dear old Grandpa finally died in the early 90's having outlived the disaster he was preparing for, did we or the rest of the family re-secrete our share of sovereigns under our own floor boards? Like hell we did! That gold was instantly sold and used for more pressing deposits on apartments, new cars or school fees.
So we wonder, as the divide in attitude and wealth between old and young widens, can the inheritors of the last generation's positions really afford or want to run them? So just as with Grandpa's gold, Europe can push the problem as far forward as they like, but when the position outlives those that instigated it we should expect sudden change. Now then .. When are the next European elections?