Tuesday, February 21, 2012

Cooking with Gas

Do you think Juncker was singing David Bowie's "Cat People" after last night's Greek negotiations?

Still this pulsing night

A plague I call a heartbeat

Just be still with me

Ya wouldn't believe what I've been thru

You've been so long

Well it's been so long

And I've been putting out fire

with gasoline

Putting out fire

with gasoline

Which is basically the sum of it, but, as we have pointed out before, the fight has moved one level lower down and now it's between the Greek Parliament and the Greek people, rather than between Europe and the Greek Parliament. What is obvious, though, is the ridiculous nature of what the negotiations have revolved around: the reduction of debt/GDP from 129% to 120.5% by 2020. That's eight years away in an environment where one can't even forecast GDP to the nearest 3% in any 3month period. What is the point? Well, we know the point, it's to keep the rule setters up north happy, but to Team Macro Man it's just another classy example of Benchmarks being Bollox. But in the short term it does move the boiling cauldron of Greek carcass stock to the back burner, where it can continue to simmer whilst the market tries to decide what's next to prepare in the recipe of Global Macro.

Team Macro Man are not that bothered by G20, but instead are looking through to next week's LTRO, which they see as a bit of a landmark event and as the potential catalyst for a change in trend (or at least a shake down). Readers will know that TMM have been believers that the LTRO is a powerful tool that is effectively decoupling bank risk from peripheral sovereign risk and so creating a fire break between a perceived default and the real economy via banks. However that doesn't mean that the short term response need be positive.

China - On simmer at the moment, but the market may well try and bring it to the boil again and it will get more airtime in the coming weeks. But unless it falls over completely (which we are NOT expecting) there is little risk of any Asian wobble being anything more than corrective. Of course this will probably lead to the overly long spec positions in AUD being unwound with associated screams of anguish and pain, but the background longer-term is not unconstructive and with ref to our Equity calls for 2012 we are looking at ASX shorts instead.

But back to the short term, it feels as though everyone wants to "sell the fact" but rather than jump on that bandwagon we would rather fade today's dips saving our ammo for next week post LTRO.


Nic said...

Nice post & good advice re LTRO.
I don't see how bank risk is really decoupled from any sovereign risk while Europe maintains a policy of "no bank allowed to fail" though?

Amplitudeinthehouse said...

Interesting factoid here, the last three times WTI has pop through 105 with trend the Bucky been appx




in sequential order.

Leftback said...

Do the entrails of today's agreement really make you want to buy Portuguese 2y in size?

Nah, thought not. One crisis at a time?

Leftback said...

This article would appear to confirm TMM's suspicion that the pivotal event will be the size of the next liquidity gift to the European banks, with some senior members of the ECB now concerned about the scale of the LTRO expectations now being priced in:

Concerns about Size of LTRO

abee crombie said...

All the research I am reading is for LTRO surprise to the downside, so I am wondering if everyone is expecting bad, will it still sell if say the number is 50B?

Perhaps the stock monkeys and HFT guys will be holding the bag?

interesting minutes from RBA .. got merve swerve feel to em

Anonymous said...

"Sell the news" on a turnaround Tuesday?

agricultural investments said...

Its almost comical really. Greece's overlords will consider it a success if total sovereign debt is lowered to 120% of GDP in eight years. How in the heck can they even predict that far out, and what makes them believe that even 120% is sustainable. Meanwhile, Greece has 21% unemployment, Greeks are leaving the country en masse and/or returning to the land, so they are clearly in the midst of their own Great Depression. Are we to believe that in a democratic country people will put up with this for eight more years??