Wednesday, January 04, 2012

Mark to Market - 2011 Edition

Well, another year is upon us and TMM are back in the saddle. We cannot say that we bid farewell to 2011 with nostalgia, a year whose effort/reward ratio was very high for TMM. And while quite a few of our macro calls went wrong, in the event, managing to catch a few big market turns helped rescue our years, leaving us sitting in modestly up for the year and above the average performance of the Macro peers. While nothing to shout about, TMM will take that as a win, giving the drubbing taken by global asset markets & hedge funds in general.

Now, time to mark TMM's 2011 Non-Predictions...

First, Commodities:

1. Iron ore will NOT be trading higher on Dec 31st than it is on Jan 1st.

HIT. Both equities involved in the space and physical traded off heavily. A Chinese tightening cycle plus capped upside on supply kept iron under pressure for most of the year and it collapsed with all things risk in August & September as Chinese property measures began to bite and steel traders were caught long inventory.

2. Rare earth metals will NOT come down to earth anytime soon and Tungsten won’t either.

HIT. TMM count this as a win, but it would have been a much bigger win in July. Rare earth export restrictions have been weakening, though spot Neodymium & Dysprosium are still up big on the year. Fundamental scarcity now has to be weighed against substitutes like induction motors replacing direct drive.

3. Copper is NOT Coming Down Anytime Soon.

MISS. TMM did cut their copper position in February, but feel it is appropriate to judge by the letter of their Non-Prediction rules, and will thus mark this as a MISS. A structurally very tight market that loosens 5% can fall a long way very fast, much as did other top metals picks of January 2011, including Platinum & Palladium.

4. WTI NOT going to be under $100 for Long.

HIT. WTI had a huge run into the Arab Spring, collapsed but finished the year handsomely up. Tough trading, but for strong of stomach and margin this one paid. As of today, it feels like groundhog day in the Middle East and in crude.

So TMM score 3/4 in their Commodities Non-Predictions.

Moving onto Equities:

5. SPX will NOT trade below 1150.

MISS. While this Non-Prediction looked good for the first half of the year, the debt ceiling shenanigans & US double dip scare (for the second year running) sent the S&P500 to an intraday low of 1076.8 in early October.

6. The DAX will NOT outperform the IBEX.

HIT. A trade that worked well for TMM early in year, with the DAX underperforming the IBEX by 11% in Q1, before further oscillations & consolidation throughout the year.

7. Emerging Markets (MSCI EM) will NOT Outperform Developed Markets.

HIT. A deteriorating growth/inflation mix - particularly in Asia - combined with spiking risk aversion in the Summer led EM equities to underperform their DM counterparts by a whooping 20%.Which give TMM a respectable 2/3 in their Equities Non-Predictions.

Next, Rates:

8. The Bank of England will NOT continue to ignore upside inflation surprises.

MISS. TMM have already issued a mea culpa here.

9. 10yr US Treasuries will NOT beach their 2010 yield lows, but will also NOT rise above 4%.

MISS. While the latter part of this Non-Prediction proved correct, as with 5), the debt ceiling drama torpedoed this one.

10. Spanish 10yr yields will NOT hold below their 2010 highs, but Spain will NOT need a bailout.

HIT. The meltdown in BTPs in mid/late-July dragged SGB yields higher and through their late-2010 highs, but Spain's consistent implementation of its fiscal plan (the "shock" announcement that the 2011 deficit will be worse than expected looks a bit like a new government "kitchen sinking" the bad news to TMM), banking system clean up and attention focused elsewhere (i.e. upon Italy), and the SMP buying have all meant that a formal bailout has not yet been requested.

Disappointingly, TMM only managed to get one of their Rates Non-Predictions right.On to FX:

18. USDJPY will NOT be easy.

HIT. Of all TMM's Non-Predictions, this was the "most" correct, screwing all and sundry who tried to go long or short constantly, ending up effectively trading pretty flat and effectively trading places with EUR/CHF in the volatility league. USDJPY was NOT easy at all.

19. The Equity/DXY correlation will NOT break down, meaning that the DXY will NOT finish the year higher than it entered it.

MISS. While the S&P 500 and the DXY correlation remained strong, with both essentially finishing flat on the year after swings in both directions, the late sell-off in the DXY in the final days of 2010 and late rally in those of 2011 conspired to push the DXY up just shy of 2% on the year. As with 3), while this Non-Prediction was broadly correct, TMM will mark it down as a technical MISS, in accordance with the rules.

20. EURCHF will NOT close the year below 1.30.

MISS. Well... what can we say...? We suppose at least we weren't the biggest losers from this one... TMM wonder whether the Hildebrands end up in jail.

21. Voldemort will NOT stop taking the piss.

HIT. While the Yuan has appreciated this year, it was still in the managed fashion and China continues to run a gigantic Current Account surplus. Additionally, Voldemort continued to push around the EUR/USD FX market, defining ranges and frustrating most macro punters. Some things never change.

And finally, onto their random Non-Predictions:

11. The UK's Alternative Vote referendum will NOT pass, but the coalition will NOT break-up before the end of 2011.

HIT. The UK electorate overwhelmingly voted for simplicity and seemed uninterested in constitutional tweaking while the economic environment has been so bleak. The Liberal Democrat polling numbers coupled with the Cameroon desire to balance the right wing of the Tory party have indeed held the coalition together.

12. Ed Miliband will NOT be leader of the UK Labour Party by end-2011.

MISS. While Ed Miliband's polling figures and general performance continued to be horrific, despite the context of a weak economic environment, and with even Labour supporters rather unimpressed, the lack of suitable alternatives and an easy mechanism for unseating Miliband the Younger have left him intact. TMM remain resolute in their belief, however, that he will NOT be UK Prime Minister (the time horizon of this particular Non-Prediction precludes its inclusion in TMM's soon-to-be-announced 2012 Non-Predictions).

13. Belgium will NOT break-up by end-2011.

HIT. One of the "popular" topics to discuss as we entered 2011, and despite Belgium's political situation deteriorating as several attempts to form a government failed, this never really became a "market issue", and in the end, a government was formed.

14. Darth Weber will NOT replace Baron Von Trichet as the new ECB President.

HIT. The dark lord Weber and his apprentice Darth Stark both threw hissy fits and resigned from the ECB, protesting its purchases of peripheral government bonds as risking the stability of the Euro. TMM think it is pretty ironic that the consensus (ex-Germany) is that doing precisely this is the only way to prevent the Euro breaking up.

15. At least 1 member of TMM will NOT have the same employer by year end.

MISS. The musical chairs in 2011 consisted primarily of chairs being removed with people sitting on them as both banks & funds reduced headcount. TMM thankfully are still in their seats.

16. The UK 2011 X-Factor winner will NOT make UK No. 1 for Christmas.

HIT. To TMM's delight, the Military Wives beat Simon Cowell's latest to the No. 1 spot in the UK Christmas chart.

17. Australia's cricket team is NOT.

HIT. 'Nuff said.

Giving TMM, on random matters, a score of 5/7.

So, the final scorecard gives TMM 13 out of 21. For market-only related Non-Predictions they managed 8 out of 12, which is down slightly on last year's 6 out of 8, partially offset by TMM proffering a larger number of Non-Predictions on quite a few outsider bets.TMM are busy compiling their 2012 Non-Predictions and hope to present these over the coming days. In the meantime, we wish all our readers a very happy and profitable 2012.


Amplitudeinthehouse said...

The e\f miss wasn't far wrong when you delve into it...the swissy have of obviously graduated from junior trader on the fx desk senior trader (senior moment?)

Anonymous said...

Seems generous on the WTI prediction. It did rally on the Arab Spring, but spent most of the year below 100, and finished at 99.

Charles Butler said...

Dead on re the ES deficit. The blacker the inherited situation, the whiter the steed upon which Rajoy has arrived upon.

And contrary to all predictions, even the unions are, except for minor tinkering to save face, swallowing what the PP is dishing out. All rather eerie actually.

Leftback said...

Very good indeed. Your DM over EM call alone would have guaranteed anyone a nice haul as a universe of hapless one-note hedge funds continued to transfer their investors money to skeptical EM bears almost all year long. We went to the well often on that one, TMM, and drank deeply.

Now for those who are jonesing for some quantitative macro, already, and it is only Jan 4, after all, here's some red meat for you, get yer gnashers into these graphs of monetary aggregates:

The Euro Area Collateral Crunch

Now if only you had added that the Indian cricket team would prove NOT to be any good at matches that last longer than 6 hours? The Golden Generation are already on their way to another hammering Down Under following on their "performance" in England this summer, which was as enthusiastic as the Chelsea Hairbands FC on a bitterly cold day in Sunderland.

Anonymous said...

I agree with anonymous (1237). USCRWTIC (on Bloomberg) averaged 95.05 for the year, and spent five plus months (mid June to mid November) without ever touching 100. I would score that prediction as a miss.

Dee Dee Humberside said...

Neat datapoint for LB and the TWINE crowd: DVY is up a cool 17% over Q4. Into overhead resistance right now, but longer term, disregard the income theme at your own peril.

Polemic said...

Re the oil call.
- it didn't stay below 100 for long. It was swiftly up 25% thru the level so a Hit on that basis. On days above/below yrs we agree it was mostly below. But like ISDA we will chose to interpret our own criteria to our own advantage.

- hugely flattered u care . We don't really, so feel free to mark as u wish.

Leftback said...

The chaps at ADP are wearing the extra long Pinocchio noses today after posting a +325k number for US private payrolls. Well done, lads! Now we can all place our bets for the monthly NFP roulette. Oooooh!

However, there is a cockroach in the corn flakes this morning. It appears to be another European bank sailing South into the sunset. What a shocker:

Unicredit Chart

Unicredit Stock Sale Threatened by Eurozone Break Up

The result of this is that US rates are not exactly screaming towards the ceiling as one might normally expect after the morning's jolly employment panto.

Nemo Incognito said...

On oil - some of us trade Tapis and Brent as well..... the quirks of rerouted pipelines and such that occur mid year are not the purview of MM and we generally try to stay away from ENCO and other obscure bits of the market that have a limited audience (Tungsten breached that rule).

Leftback said...

OK. The lads are obviously hard at it, or else down the boozer. So here is a LB Mini-Post as an amuse-bouche until the big Macro dogs get back.

HEADLINE: Aaaghhh. Correlation breakdown day.

Send the ambulances around to all global macro HFs. NOTHING IS F*CKING WORKING.

Dollar up big. Commodities/PMs hanging in.
Feels like risk on - but HY down and USTs flat.
Spooz completely detached from EURUSD, AUDJPY.
USDJPY up, EWJ down.
Betty being beaten with a stick.
Dodgy small caps and miners leading.

It's all a bit odd to the average macro punter, innit?LB has yet to make a single trade in 2012, a great way of not losing any money.

Correlation breakdown + MM No Comment O Meter?

Maybe we are close to a turn here? Markets peak on
good news, perhaps tomorrow if they print +250k?

Leftback said...

All is not well in Hungary. Another country where yields have gone parabolic, bank runs are likely at any time and the wealthier citizenry will be buying gold, CHF, USD, GBP or even EUR (if they didn't get it already).

Failed auction of bills today, that means it is close to being all over. Devaluations, bailouts, etc...

Failed Auction of Hungarian Bills

Some political rhubarb from the German press.

Political Analysis of Hungary from German Viewpoints

and some in-depth analysis of the debt issues.

Conditionality of Hungarian Debt Rescue?

Polemic said...

hard at it .

and anyway .. it's really low volume stuff that has turned into a stop-fest. V symptomatic of early year non-correlations. As for the next class of woe stories .. yes Hungary is the Euro-woe sub, come off the bench whilst the main euro players take a break.

Still annoyed at the depths everyone will delve to discredit any good news..

more tomorrow..

Leftback said...

NFP December employment Panto Time.

Any more sweepstakes entries? LB will take +225k for this one. Step up, punters, and take another shy at the coconut, you know you luv it.

ADP (+325, did you remember, children?) misses wildly, again - but hey, even 130k would still be an improving headline number. Treasuries will FINALLY sell off to some degree, after making sure the pantomime villain isn't hiding under the bed.

We will need to look at hours worked etc... for the real guts of US employment. Seasonal factors weigh heavily in January.

Layoffs of 225k US mall Santas lie ahead of us, of course, soon to be seen in a "disappointing" and "unexpectedly weak" January NFP number

... "look out, it's behind you..."

theta said...

NFP +263k for me pls

teflon said...


Anonymous said...

That's the stuff, punters, keep those bets coming...

Intrinsic said...

The market had a good run since mid dec, either it pops above the resistence and have another leg up or going to turn back.

All bets on black, +200 k

Lemmiwinks said...

I am from Hungary and I think this might be a very good entry point for bonds especially from abroad. The EURHUF is on historic levels, yields are 10%.
The government started giving signs yesterday that it was going to cooperate with EU/IMF. The PM just gave a very coolheaded statement this morning. I think EURHUF at 320 is a level, where any Hungarian government will surrender without conditions.

ntwsc said...

I could have sworn TMM mentioned somewhere here summat to the effect that they were chuffed to the mintballs for having successfully maintained ownership of their occupied chairs as 2011 was finally confined to the annals - a remarkable achievement for which I heartily congratulate them.

In this respect I'd be grateful for any management tips on account of the fact that the cat has usurped mine since Christmas.

Oh and whilst I do understand TMM's non-prediction inclusion preclusion in point 12, I nevertheless anticipate some provision in your 2012 list for Blackblusterisms.

Happy new year y'all.

PS Far as I'm concerned, you guys are a hit all year round ;)

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