Friday, January 06, 2012
We have been somewhat tied up with start of year work things, but are trying to put together our non-predictions for 2012, which isn't easy. We are sure we are not alone in finding that it is well-nigh impossible to come up with 2012 trade ideas without acknowledging the world is pretty binary due to European dynamics. Anyone who can't see that is probably wearing these (this picture taken this very morning by a friend of TMM at Xiamen airport in China):
Helen Keller sunglasses? ARE YOU SERIOUS? At some point, Chinese third string brands need to give up on trying to export and learn to use spell-check, and at least wiki some of their brand names. If they'd read this, it may have saved some ensuing embarrassment. Or at least get some decent advertising folks because this is so bad it's, err,... really bad. If this is the future of Chinese consumer brands, TMM think the better trades in the China consumer sector are food (NOT milk powder) and WPP.
Now back to markets - In our eyes we are in phase one of the WWF (Wrong Way First) move for the year. We went into this last year with paragraphs that are as apt now as they were then.
"Now of course we have the normal year-change housekeeping. It's that time of year that really highlights the flaws in the "efficient market hypothesis", as prices are about to start to move as everyone writes, reads and establishes their favourite trades for 2011, despite the information they are based on having been around for some time. It's those pesky benchmarks again. If you are personally judged Jan 1st - Dec 31st then your behaviour will treat those dates as important watersheds. (original here)"
"this time of year is full of trading peculiarities, as themes and trades for the year are discussed and executed, alongside the micro news-following tunings. As a result, we usually end up with a "wrong way first" move turning around the start of the third week. With the US on holiday for Martin Luther King day next Monday, TMM think this is lining itself up as a suitable turn date to target. We have always had a background belief that US holidays make good general turn dates. But if we are looking for turns against consensus we need to have a think about what that consensus is. Europe - As far as we can make out the trade coming out of December was to position for another major attack on Europe kicking off in January. (original here)"
So far this week has been "silly week" in our eyes, volumes have been micro in many markets and the ease on the roads into London this week are testament to folks not having fully returned after the Christmas holidays. A classic time to chase stops and test extremes.
The hole left by a lack of directly Euro negative news has been filled with the wedding of Hungary, Italian debt refunding needs, UniCredit performance and ... errr .. anything that fits. Hungary is wobbly, but though some may think it is the first candidate to rejoin the Warsaw Pact, this morning's statements of intent appear to have calmed things a bit, EURHUF looks like a short term top at least (fatal last words), so though this may just be a correction in the bigger HUF theme, we expect it to slip from the top of the worry list. The European Debt refunding story is interestingly presented - always the amount of new issuance and no regard to all that money being returned. So where is a large chunk of that refinancing money coming from? Well there is and will be, a lot of money sloshing around looking for a home.
One thing doing the rounds this morning is the bull/bear indicator with its recent high being highlighted as a potential turn signal. We last saw one this high in Dec 2010, but even then the next 2 months saw some pretty sizable rallies. Of course if you are bullish and you have little risk on, you are likely to buy; if you are bullish and have a lot of risk on, then you won't; so the starting point matters, especially in EM. Another key issue may be what the redemptions will be like at Real Money funds this month, and especially EM funds. The instructions to redeem or subscribe tend to occur in January after the investor letters go out. Following two consecutive quarters of cross-border repatriation flows only seen before in 2008, it looks as though they are prepared for similar this month with relatively large cash balances in hand (TMM have heard whispers of 7% cash). If the redemptions don't come, then our friend the benchmark is going to induce some rushed buying.
Finally we would like to thank all our readers for their support to our Xmas Charity appeal this year. A stunning effort from you all that has impressed the charity involved. We will be downgrading the appeal to the background and removing the widget, but a link will remain just in case.
We wish you all the best with your lottery ticket for today's NFP draw as we carry on dragging entrails from rabbits trying to predict 2012.