Friday, January 06, 2012

Been there, done that, do it again?

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)"

and

"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)"

Sound familiar?

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.

17 comments:

Amplitudeinthehouse said...

After seeing that ad you wouldn't be in any hurry to rush into town and buy a chow made bicycle..stick to the local made methinks..though those European made ones sure seem cushy :0) ^ 1000.

Oh!...has trading begun in 2012 yet?

Tradebot said...

hey, how dare you question China? :) Long BRICs is the new religion... I saw Jim O'Neill on Newsnight yesterday, he had a fit of range when Julian Pendock of Senhouse Capital dared to suggest China might not be all it is suggested to be.

Leftback said...

China's flaws are blindingly obvious....

Intrinsic was the winner of the NFP sweepstakes, nailing it at 200k. (Were you peeking over that bloke's shoulder?). LB in second at 225. Nobody missed to the down side. Well done!

In general MM readers were on target calling for a strong number, while media permatools, the ever-bullish and perennially disappointed Diane Swank and Mark Zandi actually missed to the down side. Jolly amusing.

Massive swings in the US 10y after that lot. The continued rotation of UniCredit around the toilet bowl may be putting a bid under that market.

Dollar looking a bit weary after a strong run. A few days of the old DGDF Complex before we see a turnaround? LB likes the 30y auction as the fulcrum for turns, also assents to the US MLK holiday idea. Nothing like watching the European market go pear-shaped while NYSE is closed to generate downside momentum on those Tuesday mornings.

Charts for most of the EMs look pretty awful. Ripe for the plucking once again, before long.

Charles Butler said...

This just in... from Rabobank:

'Both France and Austria now form a peripheral core'

Welcome to 2012.

Intrinsic said...

Scored a hit on the NFP, but getting whipped by the 10y swings makes the former moot. The year is still early boys and girls, hold on to your hats.

Anonymous said...

Robin Landry latest call...

"...this is the last chance to get your financial house in order at prices which you will unlikely see again for years to come."

Bleichröder said...
This comment has been removed by the author.
Bleichröder said...

Its something of a sideshow but I think the consensus on Hungary (i.e. that they will inevitably get an EU/IMF bailout) is pretty misguided. Full discussion here:
http://creditbubblebath.blogspot.com/2012/01/hungarian-hot-pot.html

Anonymous said...

I enjoy reading the blog, and I am long time reader, first time poster. Just wanted to erm... let you guys know that wikipedia and blogspot (amongst others) are blocked by the powers that be in the Mainland and is thus not generally accessible by in China (VPNs notwithstanding - most Chinese users don't use them).

Anonymous said...

wiki - re Helen Keller... Cheers

Amplitudeinthehouse said...

OT, Was watching Burn Notice tonight, the old duck was telling someone how she had a senior moment when leaving her phone in the freezer.

Back to the market...

Earnings is upon us,and the Spools is looking for eps growth up around here I guess.

Leftback said...

A proper snoozer today ahead of US earnings season's usual misdirection indicator....

Less of a snoozer for holders of UCG and any recent Kevlar wearers. This one is going very pear-shaped,

Unicredit 6 Month Chart

following the trajectory of NBG:

NBG 6 Month Chart

and another one for fun:

Erste Bank 6 Month Chart

Knives, we've got some....

Leftback said...

It's all very quiet out there, and TMM are a bit busy so TMM sent ace reporter LB out into the field to interview the chaps at the front lines.

'ere, wot do you reckon to this market, then, John?

"No comment".

FX correlation breakdown, so I reckon there's a lot of macro punters on the sidelines, then, guv'nor?

"No comment"

Cor blimey, the media is laying it on pretty thick about the US recovery this week, innit?

"No comment"

Funny how it's all gone a bit quiet in Yoorp even though Greek and Italian yields are attaining orbital velocity, tho', innit?

"No comment"

I like a good China squeeze, meself, like... bit tasty this old run-up 'ere, innit?

"No comment"

Do you reckon all the dumb money has been sucked into the Submerging Markups yet, then?

"No comment"

What about these US auctions here this week? Reckon the dealers throw a soft one in to shove rates up a bit? Get some selling of Treasuries?

"No comment"

Any worries about Hungary? Austrian bank exposures? Rising oil prices? Greek default?

"NO COMMENT !!!"

Well, there you have it. It really IS quiet.

No comment-o-meter does seem to be flashing today, and the VIX about to go sub-20. Readership want to weigh in on the mood out there?

WellRed said...

I have been enjoying this ride up, but it seems like we are pretty overdue for a tape-bomb of some discription - lightening up.

Whether it will be a Eurocrat speaking out, some bad data, or a bad auction, I really can't be sure. But methinks it's coming..

Polemic said...

Not so sure wellred. If you think that good news is hard to find in shock form, it's normally creep, and the market has coped with a barrage of tape bomb -ves over the past 2 months, then I still think that upcreep is the way forward.

Leftback said...

Things to do during a silly rally:

1) Smile. It's fun. Market is up. Wheeee...
2) Don't short. Cold Steel isn't fun.
3) Unload your loser mistake stocks to tools.
4) De-risk quietly and steadily.
5) Prepare to receive rates.
6) Identify good shorting candidates.
7) Keep an eye open for return of FX correlations.
8) Watch volume and credit markets like a hawk.
9) Draw loads of charts to stay out of mischief.
10) Don't be like this guy:

Candid Camera

Anonymous said...

In an American bank many years ago a manager said "guys, we need to recontextualize here". Anything is possible.